Tesla’s Direct Sales Concept Puts It Ahead Of Traditional Dealerships

JAN 23 2019 BY EVANNEX 20

TESLA’S DIRECT SALES APPROACH PROVIDES AN EDGE OVER BIG AUTO’S DEALERSHIP MODEL

Recently, Tesla reignited its fight to sell direct-to-consumer in Connecticut and New Jersey. Some states still refuse to allow Tesla to sell its electric vehicles without doing business (first) with a local franchise dealership. Tesla stubbornly sells its vehicles direct — sans middleman — and doesn’t view servicing its own cars as a profit center for the company.

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Matt Pressman. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Above: Tesla stores are often located in unconventional locations like high-traffic shopping malls (Image: InsideEVs)

As Spencer Tseng points out via his blog, “When you want to buy a Porsche, you go to a Porsche dealership. When you want to buy a Tesla, you go directly to Tesla. This may appear to be a small distinction, but it is what is going to prevent the current automotive giants from making the fast switch over to electric vehicles.”

Above: Elon Musk elaborates on Tesla’s approach to direct sales in lieu of the franchise dealership model (Youtube: MrNothingButAir via Tesla)

Why? Tseng says, “Around 47% of a car dealership’s gross profit is from the service and parts department. According to the NADA 2017 mid-year report, the average gross profit per dealership in the service and parts department was $1.6 million. The average gross profit per dealership in new and used car sales was $1.8 million.”

Above: Outside a Chevrolet dealership (Flickr: Mike Mozart)

To demonstrate the difference between servicing a gas-powered car and an EV, Tseng compares the service schedule of a Chevy Malibu against the all-electric Chevy Bolt. For the Chevy Bolt (see below), there’s “nothing but rotating tires and replacing the air filter until a whopping 150,000 miles. How are you ever going to make your money?” It’s no wonder that study after study demonstrates that franchise dealerships struggle to sell electric cars.

Above: Chevy Bolt Service Schedule (Source: Spencer Tseng)

On the other hand, for the Chevy Malibu (see below), Tseng jokes, “Now this is what a service schedule should look like! All those beautiful rows and checkmarks each symbolizing one more thing you can charge your customers for. All of this boils down to is the reality that electric vehicles have incredibly maintenance free drivetrain systems. There aren’t spark plugs to replace, oils that need changing, etc. Even brakes are expected to last 150,000-300,000 miles with regenerative braking.”

Above: Chevy Malibu Service Schedule (Source: Spencer Tseng)

Tseng concludes, “As many dealerships will soon realize, electric vehicles are going to greatly eat into their profits, and we will definitely soon see a battle between dealerships and auto manufacturers over the direction of the auto industry.” For EV sales, Tesla’s direct to consumer approach enables rapid growth. In turn, Consumer Reports calls it an “inspiration” for the industry. Meanwhile, Big Auto’s dealership model dampens EV interest and discourages sales.

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Source: Spencer Tseng

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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20 Comments on "Tesla’s Direct Sales Concept Puts It Ahead Of Traditional Dealerships"

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Or they’ll do what Nissan have done and greatly inflate the servicing cost for an EV. Here in the UK a minor service used to be £99 and a major one was £149. However, this has now rapidly increased to £149 and £199 respectively despite being the same service. The amount of labour for the charge is nowhere near proportional to that of an ICE car.

Another Euro point of view
For all I can read on the net the situation is more like a lot of poor customer experiences even among the first hour Tesla fans so I don’t know whether this approach is so much better. About the right balance can maybe be found in the European dealership model which include the following caracteristics: A/ a dealership always sell same brand of cars (I understood that in the US it was not necessarily the case) B/ there is no stock, except the random car used for test drive by customers the rule is you order your car, they build it according to your specs and you receive it with +/- 3 to 8 months (in theory same as Tesla but practically Tesla does also build batch of cars which they do expect colours & equipment will be popular with their clients, it’s a dangerous game to play). C/ Dealership are privately owned but submitted to very strict rules in order for the owners to keep their collaboration with the brand. For example car manufacturers issue yearly a price grip for all maintenance operations . It is many years I deal with this model through different brands and I almost… Read more »

So what you’re saying is that you still really don’t like Tesla? I couldn’t really tell..

Another Euro point of view

The cars they make are great and Tesla is doing a great job pushing the OEM’s hard in the back towards EVs but really there are such loads of BS around that company that it needs constant reality check. I am a reality provider. Elon became one as well since last week, hope it lasts.

Yeah, I’m sure you’re really pulling for him.

“It is many years I deal with this model through different brands and I almost never had bad experiences.”

This must be opposite day, because what you say is the exact opposite of all my experiences with dealers, and I’ve read lots of good things about the fast, efficient experiences people have when buying Teslas.

What is the cost of a car from a European dealer like you describe and the cost of the same car from a U.S. dealer?

If I were Musk I’d put up giant electronic billboards in Austin, Lansing, and Hartford; billboards that state “Your legislators have passed on $X in tax revenue by banning Tesla automobile sales.” The billboard would constantly add to the missed revenue total based on the number of new cars registered in the state and the state sales tax. At some point the total revenue missed by these states must outweigh the benefit of campaign contributions from the automobile dealers association.

Excellent idea. I would also add a line to the billboard that translates the $X into something tangible, like full-time teachers or miles of highway maintained.

Thanks but for now I’ll stick with my local dealer(s) they have great customer service, parts in stock or if not in a day. The latest new car (Honda) I bought for my wife, Found it on the dealers website, in stock, Was in the dealership to close the deal literally took about an hour, paid cash, Told the finance lady was not interested in any add ons, she took it at face value and just took the check. Wife curbed a tire and wheel, AAA to dealer, free loaner, got proper new wheel and tire and front end alignment checked , had car back in a day. I was on the road thousand miles away, took care of everything with two phone calls. Look forward to full service EV dealers in the future. I worked for two different Chevy dealerships years ago as a parts manager, both stores had very loyal customer bases and we had great service. If you don’t like dealers buy elsewhere. But a good honest dealer is still a viable business model. I’ve visited the south Florida Tesla store, the place is a dump. You really need to want to buy one if your store… Read more »

Yeah, I think my favorite part of dealerships is when the salesman tells me he has to go “talk to his manager” for 30 minutes. Right out of ‘Slimeball Sales Tactics 101.’ And then I go use the restroom and happen to see him cokin’ and jokin’ with his “manager” in a back office.

People need to realize that [1] not all dealerships are the same, just as not all EVs are the same, and [2] not everyone is near Tesla facilities. In my case, my wife and I found a local Nissan/Chevy/Toyota dealer we like. Yes, they don’t know much about EVs, but their service and sales operations are overall solid. We’ve bought three vehicles from them to date and have been happy enough we’d go back to them. And we happen to live in an area of NY State where the nearest Tesla store is 250 miles away.

Sure. Unsolicited emails and phone calls are so much better than dealerships.

Yeah, dealerships are really cool.

Meh… I’ll definitely give the win to Tesla on this one. Car dealerships suck and people loath going to them even more than the dentist. The thing I think Tesla needs to do to make the direct to consumer model work long term is to provide a well-stocked, reasonably priced, parts counter (could be online w/FAST shipping), and a published service manual. Once all the wealthy goat-ropers start upgrading to the latest and greatest, the rest of us will be snatching up used Teslas and wrenching some extra life into them… if possible. A good parts supply, published service manuals, and the growing knowledge base will greatly help maintain resale value.

I get Tesla service labor isn’t a profit and in fact many states require the labor rate to displayed but Tesla seems inline with other automakers as far as overcharging for parts…It’s about a $1000 to fix any malfunctioning door handle…

From rules of life: No. 5. Never go to a dealership to get your car serviced, unless it’s a recall or a part under warranty. No. 6. Find a good, reliable, mechanic, and be really nice to them. As regards the Tesla approach I think it’s part of the overall package which flies in the face of typical car sales and service. Tesla wants to make a car that will last 20 years and still look reasonably current. Anti planned obsolescence at least as regards the best car you can currently get, while PO wants to refresh models every 5 years or so, and install parts that have limited life, so that at some point driving that old bucket around with all the stuff going wrong is just not worth it anymore. I know of which I speak having kept cars on the road for long past their traditional lives, with reasonable expenses. People might argue that with Tesla you have a different sort of PO, as in computer hardware that is now out of date. This is correct except that the car is still fine as a car, as it’s not falling apart, look out of dat, or is… Read more »

ffbj said:
“Tesla wants to make a car that will last 20 years…”

I call BS. Tesla doesn’t do reliability testing on many of its parts to determine mean time til failure. How many door handle replacements and center LCD screen replacements is a Model S going to go through in 20 years? These two parts have been documented to fail even before the 4-year warranty period expires. Tesla even redesigned the door handles and they still fail prematurely.

https://teslamotorsclub.com/tmc/threads/my-door-handle-is-stuck-what-do-i-do.105669/

https://teslamotorsclub.com/tmc/threads/screen-discoloration.96016/

So many people want to demonize the dealer network, always have something to say when it goes bad, rarely have something to say when it goes well.

I’m now in my 30th year in the industry, worked for many different manufacturers. Every single one of them, when exploring the gray areas of warranties and such, have a default tendency to side against the customer.

Without the dealer network many of these manufacturers wouldn’t appreciate the loyalty they currently enjoy, many dealers do a fabulous job of managing customers expectations and save many of these relationships for manufacturers.

I acknowledge many also cost relationships well, but largely they are a huge asset, and employ many families in the process.

Recent experiences seem to indicate the Tesla experience has dropped below that of dealerships due to growing pains associated with ramp up. Too many cars, too few service folks, total lack of communication. It’s giving me second thoughts.