The Tesla Approach to Distributing and Servicing Cars

There are reasons why Tesla is pursuing a company owned store and service center model that we feel are really important. In many respects, it would be easier to pursue the traditional franchise dealership model, as we could save a lot of money on construction and gain widespread distribution overnight. Many smart people have argued over the years that we should do this, just like every other manufacturer in the United States, so why have I insisted that we take a unique path?

GASOLINE vs ELECTRIC

Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars. It is impossible for them to explain the advantages of going electric without simultaneously undermining their traditional business. This would leave the electric car without a fair opportunity to make its case to an unfamiliar public.

Anyone who has experienced Model S understands that our car is quite different from other vehicles. It is designed with the aspiration of not simply being the best electric car, but being the best car of any kind. Despite being purely electric, it is faster 0-100 than BMW’s top of the range M5 (according to Automobile Magazine) and yet can drive incredibly long distances.

A journalist from The New York Times recently drove Model S all the way from Lake Tahoe to Los Angeles, a distance of 531 miles, using our new Supercharger system to recharge for free in less time than it took to eat lunch. In case your eye skipped over the “for free” part, I would like to emphasize that again – owning a Supercharger enabled Model S really does mean free long distance travel forever on our high speed charging network. Given the high cost of gasoline, this is something that only an electric car company can offer.

Model S also has the largest automotive touchscreen in the world and the ability to add new features and capabilities over the air, just like your computer or mobile phone. This is a car that will keep getting better the longer you own it, creating a difficult comparison for dealers that still have to sell large numbers of old technology gasoline cars.

REACHING PEOPLE BEFORE THEY MAKE A DECISION ON A NEW CAR

By the time most people decide to head to their local dealer, they have already pretty much decided what car they want to buy, which is usually the same make as their old car. At that point it is largely just a matter of negotiating with the dealer on price. Tesla, as a new carmaker, would therefore rarely have the opportunity to educate potential customers about Model S if we were positioned in typical auto dealer locations.

That is why we are deliberately positioning our store and gallery locations in high foot traffic, high visibility retail venues, like malls and shopping streets that people regularly visit in a relatively open-minded buying mood. This allows us to interact with potential customers and have them learn about our cars from Tesla Product Specialists before they have decided which new car to buy. The Product Specialists are also trained to answer questions about electric vehicles in general, not just ours. They are not on commission and they will never pressure you to buy a car. Their goal and the sole metric of their success is to have you enjoy the experience of visiting so much that you look forward to returning again.

As it is, our Product Specialists could not sell you a car today under any circumstances, as Model S is already sold out several months in advance and there is no inventory on site. All they can do is get you to consider placing a reservation. Our stores are designed to be informative and interactive in a delightful way and are simply unlike the traditional dealership with several hundred cars in inventory that a commissioned salesperson is tasked with selling. Our technology is different, our car is different, and, as a result, our stores are intentionally different.

FAIRNESS & FRANCHISING

The U.S. automotive industry has been selling cars the same way for over 100 years and there are many laws in place to govern exactly how that is to be accomplished. We do not seek to change those rules and we have taken great care not to act in a manner contrary to those rules.

Automotive franchise laws were put in place decades ago to prevent a manufacturer from unfairly opening stores in direct competition with an existing franchise dealer that had already invested time, money and effort to open and promote their business. That would, of course, be wrong, but Tesla does not have this issue. We have granted no franchises anywhere in the world that will be harmed by us opening stores.

Regrettably, two lawsuits have nonetheless been filed against Tesla that we believe are starkly contrary to the spirit and the letter of the law. This is supported by the nature of the plaintiffs, where one is a Fisker dealer and the other is an auto group that has repeatedly demanded that it be granted a Tesla franchise. They will have considerable difficulty explaining to the court why Tesla opening a store in Boston is somehow contrary to the best interests of fair commerce or the public.

It is further worth noting that these franchise laws do not even exist in the rest of the world, where almost three quarters of premium sedan sales take place.

SERVICE COVERAGE

Finally, I’d like to address another issue that is very important to us as a company. We believe service is a top priority for every customer. At the beginning of 2012 we had 10 Stores, 1 Gallery and 9 Service Centers in the United States. At the end of this year, we plan to have 19 Stores, 3 Galleries and 26 Service Centers. In less than three months from now we will have more Tesla Service Centers in the United States than Stores and Galleries combined. We are opening service centers in numerous cities where we do not even have stores. This will ensure that all customers in these areas will have access to Tesla certified technicians, despite the fact that we do not have a store in the immediate area. By the end of this year, over 85% of all Model S reservation holders in North America will be within 50 miles of a Tesla Service Center. 92% will be within 100 miles. Service is a top priority at Tesla and always will be.

At Tesla, we will continue to focus on the future and the future of your children, grandchildren and their children. In order to accelerate the adoption of EVs, we must be able to create and execute a business model that allows us to advance the knowledge of EVs in a convenient, accessible, no pressure environment.

Elon

 


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Comments

Mnunlist@gmail.com

Elon,

I love the product you've developed and created and as a shareholder, I'm looking forward to you bringing a more affordable Tesla to the masses.

But after reading your statement above, your lack of experience working in retail in the automotive industry is demonstrated greatly. Moreover, if your DOS (Director of Sales) has proven successful retail leadership experience in the automotive industry, they would have done their job and strongly advised you against the model of "company owned stores & service centers". I'm not sure if their is a fear of conflict among your management team to confront their peers or they haven't earned that level of trust with you and one another, but this should have been addressed, especially with your logic stated above for choosing this sales model.

"By the time most people decide to head to their local dealer, they have already pretty much decided what car they want to buy, which is usually the same make as their old car. At that point it is largely just a matter of negotiating with the dealer on price. Tesla, as a new carmaker, would therefore rarely have the opportunity to educate potential customers about Model S if we were positioned in typical auto dealer locations."

This is completely INACCURATE. In today's Internet age, more than 50% of car buyers are coming from the Internet, searching and browsing vehicles with the lowest prices, most incentives, best deals, and ultimately, the lowest payments. These Internet "buyers" most often than not base their decision to buy on price. Their isn't much brand loyalty with Internet buyers. As for "walk-in" customers, your highest performing franchise dealerships are lucky to have a 40% closing ratio with these customers. That means 60% of walk-in customers didn't buy from you, either because they choose a different brand, bough from a competitor, or didn't buy at all.

The point is that by the time most customers go to their local dealer, the price has already been negotiated through the dealerships internet department, also known as, business development center (BDC). Most importantly and logically, if most customers decided to buy the same make as their old car, enough to give Tesla that much of a disadvantage in typical dealership locations, other large manufacturers like GM, Toyota, Ford, Chrysler, Honda, BMW, Audi, Mercedes, and so forth wouldn't be acquiring market share from one another on a quarterly basis by 3-5% (3-5% equals billions in revenue). Additionally, that's like saying the automotive industry isn't competitive, which everyone knows the automotive industry is extremely competitive, what do you think the point of all the manufacturers and dealerships paying millions in advertising & marketing is for?

"At Tesla, we will continue to focus on the future and the future of your children, grandchildren and their children. In order to accelerate the adoption of EVs, we must be able to create and execute a business model that allows us to advance the knowledge of EVs in a convenient, accessible, no pressure environment."

One of your strongest arguments for this model is customer service and retention as if it is so unique that you're providing a superior customer experience that is driving Tesla vehicle sales, which it isn't. What is driving Tesla vehicle sales is the unique product, NOT the customer experience or the "Product Specialist" because that isn't unique. Your most successful dealerships are dealerships that have built a loyal customer base through superior customer service as well as mastering the best practices in retail automotive sales: Customer Service is #1 = Top Priority, No-Hassle Buying = Fixed Prices, High Volume Service Centers = Customer Retention, Top Performing Business Development Centers = Internet Sales & Traffic, Effective Marketing & Advertising = Data Collection from customers, and most importantly, developing a corporate culture that is contagious, a culture that your employees love and are invested in.

Their are many franchise dealerships out there with bad reputations, rightfully so, but their are also many professional successful dealerships as well that have been in business for decades because of what they're doing right. It's a matter of identifying them and selecting the right franchises to partner with.

michael@artissi...

Mr.Elon Musk and the Tesla Motors Team,
You must all can't wait to get up in the morning and go to the best job anyone could ask for, and be surrounded by great leadership and an amazing company culture. How lucky you all are!
Elon,
You have taken probably the greatest invention of the last Century, and completely challenged it and transformed it. You are my new hero!
I did not need a new car. Matter of fact, I stopped buying new cars and bought used, as it is a depreciating asset, and I usually let the first buyer take the hit, and buy one with a few thousand miles on it. Usually save a third of the price.
A friend drove a model s into my driveway and I took a second look. I went onto your website and started devouring anything to do with Tesla and the model s. I said to myself,that if this car can drive half as good as they say it is..........well
I went for my test drive at one of your service centres here in Montreal. When we got back to the service centre, I asked if we could go again! Amazing!
My "New" model s is arriving at the beginning of January. I can't wait!!

semo_n@yahoo.com

I cannot wait for the Tysons Corner location to open. So exiting. Of course I already reserved my Model X. I have seen a lot of speculation regarding the AWD option and how much it will add to the price, but those opinions or not based on concrete information. I am sure Tesla is considering the cost increase based on the profit margin of the vehicle and the cost of individual components. People may be amazed at how much less Tesla may be able to do it for than what they are expecting. شركة تنظيف منازل بالرياض شركة تنظيف خزانات بالرياض

Another thing is the questions about unfair competition. The intent of the law was to protect francisees from unfair competition created by the brands they represent. Since Tesla has no francisees, this will simply be a waste of time and money caused by those filing the suit. Perhaps they know this, but think if they can cost Tesla money, it will drive Tesla prices higher so they (dealers) will be able to sell their own inferior product more easily.