The Tesla Approach to Distributing and Servicing Cars
teslamotors.com
teslamotors.com
This is not the experience I had. Walked into a Tesla store, said I want to test drive a Roadster. Salesman went into that profiling mode that all car salesmen do constantly and no customer likes, asking me all kinds of questions to find out how much I earn. Since my answers didn't please him, he told me I could test drive it for $300 for half a day - essentially renting it.
I won't be going back.
Another way to think about it is this: if you were a serious buyer, i.e. the type who can spend a tens of grand on a car, then a $300 fee would be pocket change for you. In all likelihood, it would count towards the purchase of the car if you decided to buy one. But declining to pay the fee basically confirms their suspicion that you were not a serious buyer and were there simply to satisfy your curiosity.
If I'm trying to decide whether to buy a Maserati or a Tesla, and you tell me I need to pay you $300 for the Tesla just to test drive it, I can tell you that I'm buying the Maserati, since they've already figured out that I'm a potential buyer.
Tesla is smart to size up the people that walk into their stores so that they don't offend the ones that actually can buy their cars. If they offend non-customers, so be it.
If you walked off the street into a Maserati dealership dressed like a hacker, refused to provide any information qualifying yourself as a prospect, and demanded a test drive, you might not be allowed to drive one at all.
Of course, if you wanted a Maserati, you could probably have one next week. Tesla is back-ordered to forever. So whatever they're doing seems to be working OK.
Like I said, any high-end car sales rep is trained to quickly profile potential buyers. They judge everything from your looks to your body language and profession. When you're talking about really expensive cars, it's better to err on the side of caution and lose a few potential sales than let just any loser off the street test-drive one.
I had a friend back in college whose dad was the owner of a local Mercedes dealer. After interning there for a summer, he cryptically told me that he "cracked the code." From there on, his favorite hobby became dressing up in nice suits, walking into a high-end car dealership, and convincing (with 95% success) the sales rep to let him drive one of their cars. I accompanied him for one of his trips and got to test-drive for free a Lexus convertible, a Ferrari, and a Nissan 350Z back when it was new.
Sure, give preferencial treatment to people who have the money to buy one, but let everyone try them out.
You're not comparing apples to oranges. You're comparing a paper airplane to a 747.
This $300 is definitely not unreasonable.
And if the answer is no, would you want someone you pay good money to spending time with someone that doesn't have the means to actually buy the product instead of a person who does?
To this extent, I even rent the car I'm going to buy (go to service dept at dealership, ask for the specific model). This way I can tell about all those ity-bitties like oh, whether the car will fit comfortably in the garage, how it feels on the way up the mountains, etc.
What I don't think they should do is charge for test drives as a matter of practice, because that doesn't help them court their target clientele that are getting free rides (as vetted customers) at the competition.
The store was clean. Lots of people were in and out. And the whole experience did a good job to highlight the innovation behind the Model S (they had an entire powertrain on display).
The Newport Beach store didn't have the Roadster, but if they let me test drive a Roadster for $300 for a half day... I'd jump on it. It'd be a very fun half day and well worth the few hundred dollars.
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.
Which means either
A.) They're not going to build more than 30 charging stations.
B.) They're all going to be significantly far away from population
centers, and used only for interstate travel.
Oh, really?
What about natural gas, hydrated methane and the most important of all, nuclear fusion energy?
The universe is filled with billions of billions of billions of stars, it is not that fusion energy does not work, we only have to control it and we will.
It doesn't matter that burning coal rains down radiation in the form of C-14- most people don't know that, and remain more afraid of anything with "nuclear" in the name.
Even before DeBeers no one was actively against diamonds. Convincing someone to be positive towards something they from the outset where ignorant of or indifferent to is quite easy, especially if that things is harmless, pretty and shiny. Convincing someone to be positive towards something they've spent their entire life being warned against is Hard, especially if there is plenty of indisputable scientific evidence that that thing can in fact be very dangerous in many scenarios.
Then again, I'm not a business expert, so perhaps there's bookkeeping shenanigans here as well.
Sure you can cross the country for free, provided you want to go this way.
The convenience store attached to a gas station is very profitable (huge markups on cheap food) but has relatively little revenue. The gasoline is not very profitable (razor thin margins due to competing with, essentially, everyone) but brings in a lot of revenue. (Every customer at a gas station buys gas)
The convenience store is the most profitable part, but that doesn't mean you can get rid of the gas pumps and just sell five dollar bottles of Coke.
About 2 or 3 years ago he bought a larger building, hired more mechanics, and didn't build gas pumps. They're just not worth the hassle.
For perspective, the credit card companies made more money per gallon than he did as the gas station owner.
I have a friend who runs about a dozen gas stations in the bay area, and they literally change the price for each tanker of gas that comes in - the pricing is so dynamic - and they get charged based on the neighborhood/market that they are in. Her goal is to not lose any money on gas sales, and make it all up in the store.
He sold up last year.
I would also imagine some bill will show up asking electric companies to tax home charging stations separately.
Given the tax implications, I would also bet the 110v plug-ins will be made illegal for electric cars for "safety" reason ("safety of a state's road tax revenue").
Meh, I don't think they'll need to. Somewhere on the Tesla website there is a cute little calculator that will tell you how long it takes to fully charge the Model S with the various charging adapters. As I recall, the 110V / 12A outlet takes something like 4 or 5 days. That's fast enough that most people could probably keep their drive-to-work car at a mid-range SoC by charging all night and while at work. But that doesn't leave any room to really use the car for any errands. I have a feeling that very few owners would consider that a viable option for long-term ownership.
Additionally they can certainly recoup costs on charging non-Tesla cars.
Electricity cost: $2,550 to $10,200 Percentage of $57,400 vehicle cost: 4.44% to 17.77%
There's also a supercharger 'activation fee' for the models that don't have the highest end battery [4] which presumably rolls in some of that cost. So I agree this is probably economically feasible.
Of course, it all depends on what their profit margins are like when they get to serious production, what the charging efficiency is like, how much use Tesla's charge stations get, and how good a deal they can get on their electricity.
[1] http://www.msnbc.msn.com/id/12040753/ns/business-consumer_ne... [2] http://michaelbluejay.com/electricity/cost.html [3] http://en.wikipedia.org/wiki/Tesla_Model_S [4] http://www.teslamotors.com/forum/forums/update-supercharging...
That's the key - those superchargers are for long distance travel, not local travel.
That's many fewer, I would guess, than could possibly make the charging stations really profitable. And they need some solution to long-range travel, and nobody else is going to fix that for them. So the costs are sunk in pursuit of the real goal (selling cars), and they're not going to make much money selling power anyway, so why not turn it into a unique and reasonably cheap feature?
I would expect that once Tesla and/or electric cars are more established, they'll change the terms. At least they have the option. Note the "Supercharger enabled Model S" phrase--already laying the groundwork for future changes to their policies. Good reason to get in early, if you can.
Frankly, I wouldn't be surprised if their long-term plan is to cede charging to the rest of the world. It's not really their focus as a company.
Now we're seeing these same groups try to initiate and bring in new laws to stop competition that is truly an innovative take on an industry. Such as the Uber amendment[2] that was to be written and voted on in less than 24 hours, or cease and desist notices being sent to Lyft and SideCar, telling them to shelve their business while they investigate whether or not they are doing something illegal[3].
Entrenched industries with connections to governments, and governments making tax revenue from these entrenched businesses both have a huge incentive to get old laws enforced past their original intent (which were often written for the sole purpose of protecting those entrenched businesses anyway) and new laws written and passed to shut this down.
However, these truly innovative companies are filling a need that the old ones don't. That's why there are more Uber black cars in SF than there were black cars in traditional services before Uber[4]. These companies that are pushing society forward have so much momentum and support from the communities using them that lawmakers are better served listening to the people than ignoring them.
I have no doubt that Elon Musk and Tesla will be able to disrupt the car-buying market by selling direct to customers. Maybe we'll see another startup come along and piggyback off of their success by selling other cars direct, blatantly ignoring the protectionist laws, and consumers rally behind them to get the laws changed.
I don't know where the future lies in the auto industry, but I do know that innovation and forward progress won't be stopped in the long run, no matter how many road blocks there are. I have huge respect for all of these companies that are not only working on doing the incredibly hard task of creating and trying to sustain a company, but having to fight much larger corporations at the same time.
1. http://abcnews.go.com/WNT/story?id=131571&page=1
2. http://blog.uber.com/2012/07/09/strike-down-the-minimum-fare...
3. http://thesidecarblog.files.wordpress.com/2012/10/sidecar_cp...
4. From Travis Kalanick's talk at Startup School
I'm not saying that was your point, but in general I'm bewildered by this growing attitude that web-dev "hackers" can solve problems of humanity by just building a bunch of RoR websites. It managed to reach even at least one TED talk. Sounds to me mostly like front-end developers wanting to feel good that they're making difference when building cat-photo-sharing apps. But somehow it ended up as a global perception that "hackers" build websites and problems get solved.
Franchise laws are the product of decades of overlapping private/public enforcement of contractual issues between dealers and manufacturers. It seems clear on the face of it that Tesla should in no way be encumbered by the arrangements made between General Motors and its dealers, because Tesla never had dealers to pull the rug out from under. And this is notwithstanding the fact that encoding and enforcing agreements between dealers and manufacturers should have been the province of contract law, not statutes.
Taxi regulations serve legitimate purposes beyond enforcing agreements. For instance: in many states, it's difficult to get a job driving taxis or even black cars with a suspension on your record, because the licenses are held by parent companies who are liable to lose them if a driver causes an incident.
Loud arguments declaiming the insanity of applying taxi regulations to a service as excellent as Uber also tend not to engage with the real argument, which is, "what do we do when there are 10 Ubers, and drivers can hop between them?"
You can believe that there are valid reasons to regulate cabs and black cars, or you can not believe that. But it's intellectually dishonest to lump that question in with franchise laws and licenses for florists.
My overall point is that vested interests in many industries are using old laws and regulations to litigate against disruptive companies in their respective industries with the intention of stopping the disruptive company, and where those laws aren't sufficient, they are trying to pass new ones. And that despite this effort from vested interests (often times, government included), I believe that the true innovators will persevere.
Is there something about that you disagree with? I'm not sure what the point of your reply is.
Incumbents in the automotive industry are trying to abuse existing laws to harm or extract rents from Tesla, but should and probably will ultimately fail to do that, because the purpose of those laws is orthogonal to what Tesla is doing.
Incumbents in the taxi/livery business are wielding their regulations against Uber. But their claims are not as specious. They are encumbered by legitimate regulation, and Uber is in part profiting from regulatory arbitrage. Even if they didn't want to throw up hurdles to Uber, they more or less have to lobby to have their regs enforced on Uber, or else be structurally disadvantaged.
This is a distinction you failed to draw in your comment, which drew a circle around "florist licenses", Uber, and franchise laws and claimed they were all part of the same phenomenon. No, they aren't.
Those claims aren't yours to make. How legitimate or illegitimate any given law is in a given circumstance is arguable and subjective. Thus the court system, lawyers, and the entire judicial branch.
Eric's point - that these cases are all part of the same phenomenon - makes complete sense. Incumbents trying to leverage power to stifle innovation from a new generation of companies. It's simple enough, I don't even see what there is to argue.
What there is to argue is that there are industries where regulation serves no purpose other than to stifle competition, and there are industries where regulation serves the purpose of actually protecting people.
Taxi licensing is an example of the latter.
And in general, as much as HN loves the narrative of "plucky disruptive hackers vs. evil entrenched interests", it is fundamentally not right for a company to "disrupt" by skirting laws and regulations that competitors are required to obey. It is also unsurprising that competitors raise an unholy stink when that happens, and you would do exactly the same if placed in that situation.
2. I can't argue that I wouldn't complain if I was an entrenched incumbent. Luckily for me I guess that's not the case.
It's just my opinion, but as I see it, it's fair enough to classify all the aforementioned cases as examples of analog regulations in a digital world. New digital players taking advantage of the latest technology, and old players taking advantage of yesterday's laws.
That's a simple application of logic, with no knowledge of the "court system, lawyers, and the entire judicial branch."
The highest end Apple products are still affordable by most people. Sure it might be an expensive investment but definitely affordable. So with great marketing they managed to get not only the previous Apple fans but also managed to convince most people that the markup for an Apple iSomething is worth it.
I don't know if the same thing is feasible for Tesla cars which are definitely not affordable by most people. Also, the same marketing techniques might not work for the demographic that would buy a Tesla.
A - fully-electric cars are still too early and will get crushed by hybrids or more efficient diesel/fossil fuel cars. Tesla becomes irrelevent.
B - fully-electric is all the rage, and every brand will have one. Tesla will become the victims of their own success.
I'm going to assume many of you are going to disagree with me. Mainly because we come from a world with a much different customer acquisition models.
For most people, if they had a choice they would buy a trusted car brand. Would you buy an Honda/Acura, Toyota/Lexus, Mercedes, etc with dealership in every corner or an unknown car called tesla? Also, unlike niche companies like Ferrari/Lamborghini that have brand and performance appeal, tesla doesn't provide anything unique. For the same price point, there are far better cars, than the original lotus-based Tesla. To that point, what's their beachhead?
The point I'm trying to make is that that the prediction is correct assuming "people" refers mostly to the people making the predictions. Or... people tend to project their ways of thinking, and likes and dislikes, onto other people.
2 - Apple had the entire MP3 market with their ipods not to mention an army of long-time fanboys. Translate to a strong consumer brand loyalty. Tesla doesn't have any of these.
This is false. Most car companies have been researching electric vehicles since the 60's or 70's when the first oil crises happened. And as for technology, Tesla is not actually ahead, in neither range nor charge up speed.
As an example, this is also a "Startup" thing. An electric bus, that gets better range (everything considered) and faster recharge times:
http://www.jaylenosgarage.com/video/proterra-ecoliner-electr...
Exactly. They've spent all those years and dollars, and they still have nothing compared to the Model S.
But regarding point B: many makers already have an electric model: Toyota, Honda, Nissan, Ford. I think Tesla is a cool company, but they didn't invent the concept of the electric car and they don't have a monopoly over it.
I think it's likely that electric cars will gain a bigger share of the market relatively soon (in auto industry terms), even if Tesla doesn't succeed.
C - full-electric is the rage, every brand has one and Tesla remains the 'premium' brand ?
My thinking is that the new vehicle market is quite large, and Tesla, as an early mover, has a great advantage relative to the other manufacturers. Their disadvantage is that they aren't as well capitalized. Their lack of working capital will kill them if they have to pivot very far from their current path, but otherwise it won't be an issue as long as they can scale production with demand.
Currently, you can't buy anything like a Model S from any of the other brands. Further if they start today it will be 24 months before they can launch something. So Tesla has a couple of years of runway, nearly all to themselves, in this space. (Note if you don't think they bring anything unique, I suggest you get a test drive of a model S and then go to Nissan and drive a Leaf) Tesla sells a 'no compromises' electric car, no compromise on range, no compromise on performance, no compromise on comfort, no compromise on quality. And significantly cheaper to fuel up. So that will sell them a lot of cars to people who are attracted to that stance, and those people's followers will get cars because they are followers.
Now it is an open question as to how many total cars that first batch is. Is it 100k, 250k? 1M? That depends on a lot of things. But if electric cars do take off as mainstream, I expect Tesla will be the 'best' one for a while yet.
Tesla wisely is going after premium buyers, that market is niche by definition. They've done that because car is a major purchase unless if you a lot of money and you are more willing to take a chance on a new car company.
But beyond that, it doesn't matter if Tesla is building a better car, it matters if consumers think Tesla is building a better car. And tesla doesn't have the same brand loyalty in a very competitive market.
Secondly, if you're buying an electric car for environmental or gas price reasons, there are other options. I can lease a Nissan Leaf now for $199/month. The amount of money I save on daily gas cost driving my Honda will almost come to $199! It means I can have a car for 3 years for free (minus the $2000 singing fee). Tesla just can't compete with that!
I think folks who drive a model S will pretty quickly understand that Tesla is building a better car, so if someone was in the market, and open to an electric, Tesla is a contender.
I expect the majority of Tesla's sales to be 'status symbol' sales initially (just like Hummer's sales) and later a more durable market will develop. And I think it will benefit from being considered the 'best' you can get, Elon is a pretty compelling figure as well so very trendy.
Where we differ I expect is that I expect they can translate that early success into a broader class of car.
[1] rummaging around in http://online.wsj.com/mdc/public/page/2_3022-autosales.html isn't particularly helpful.
There are no cars on the market that even come close to the Model S, the Nissan Leaf has a pathetic 73 mile range. The Tesla is 10x the car the leaf is, performance and luxury-wise, and it get's almost 4 times the range on a single charge. The Model S Signature (equipped with an 85kWh battery for a 300 mile range) MSRPs at $87,900; a Nissan Leaf MSRPs at $37,250. Sure, that's a pretty significant jump in price, but when you consider the fact that the Model S competes with a BMW M5 performance-wise, you see it isn't all that crazy.
Even if you take the 40kWh Model S that will MSRP for $49,900 you can see that it's a way better deal than the Leaf. Sure, the Models is $12,650 more than the Leaf, but you actually get a reasonable range (160 miles) and the luxury and performance that the Leaf just cannot compete with.
You are assuming other companies have not yet started building electric cars. This is extremely false. I was at the Detroit Auto Show in Jan 2011 and saw Ford driving a fully-electric Fusion around the showroom floor.
Tesla certainly appears to be ahead publicly, but I'm not so sure that's the case.
I don't disagree with path A, but the fact is, path B (and Musk's prediction that half of all cars sold will be full electric by 2032) can't possibly happen with our current power distribution system in place.
The only conceivable way that electric cars are going to take over will be if the government steps in and mandates universal form factors for swappable batteries that can be charged at advantageous times and locations and made available to drivers when and where they're needed. Any other approach to electric cars is simply stupid, and I can't begin to imagine why someone like Musk doesn't grasp that.
I speak as someone in the market for a new moderately-high-end car who would love to support Tesla... if only the whole idea wasn't so hopelessly wrong from an engineering standpoint.
-- What is the weight, though? @450 pounds?[1]
___________
[1] edit: source of estimate - Honda s2000 with A123 li-ion was discussed in thread below, estimated battery pack weight was approx 460-500lbs. Car had more hp, though.
I don't think replaceable modular batteries would be that much heavier than whatever's being done now. But yes, there would be some additional overhead, given that even the smallest cars would probably take more than one battery module.
That being said, the actual cells themselves are only a couple of pounds each. Would be interesting if this could be engineered to just take out something like the 100 micro-cells (at 4 lbs each), and toss em in a shopping cart. Maybe have a robot then sort and charge them in a special room full of charging racks. (like automated library book retrieval). But they would need to be built up in a certain way, and put in a housing, etc to go back in the car OK.
You weren't the first to think it. When I was a kid in the 90s I read books, written in the 70s, about "the hydrogen economy" that would be everywhere by ... the 90s.
Maybe there are more failures that I'm not aware of, but generally I've noticed that full-size franchise automotive dealerships tend to last forever and are somehow tremendously profitable for their owners despite what looks like a tiny margin between "factory invoice" and what people pay for a new car.
These are wealthy, highly profitable legacy businesses and no doubt they're going to go out fighting any disruptors in court.
Next up, someone please give us the killer app that disrupts and dismantles the real estate racket and their 6% commissions...
Because they sell more power back into the grid than they use up. I'm guessing they'll just add more solar panels (a fixed cost) as the number of charging stations at a given Supercharger goes up.
Sort of like if I have a smart phone and I go to a friend's house it would be nice to be able to charge my phone on their charger. Phone chargers are cheap. Car chargers are not so much.
That doesn't make sense. The breakeven point for a solar panel is around 10 years (assuming you're using it solely for your own power generation purposes, that is how long it takes for the panel to "pay for itself" in offset electricity costs).
The charging stations are there to charge vehicles. To keep them breakeven on power (forget about land/rent/taxes/maintenance) they would need a field of solar panels.
Hardly seems like a logical approach.
My guess is more that they will sell "upgrades" to the vehicles, they mentioned the large touchscreen and upgradability in the article. Perhaps certain future software enhancements will be paid, in order to generate some residual revenues.
It has amazed me that we have been in a technological age for a long time now where buyers can pre-select what they want to see and don't need more than someone to open the door for them at a property, and sellers don't need anything more than a way to get their property on the MLS yet they continue to give up a total of 6% of the sale to an agent.
That 6% amounting to $10K or so on a "median" house in the US seems not incredibly out of range given how much effort along the way results in no sale, but in a major city it can reach $100K or more for the same amount of work. The competition to be a selling agent must be fierce.
Overall it makes local moving relatively costly and can chew up a disproportionate share of any investment gain if that's your angle.
It makes sense if you think about it, in San Francisco, many neighborhoods have 80% of the houses priced close to $2M (i.e. these are not atypical homes). If everyone stuck to the 6%, then agents would be getting $60K for each house sold (I know they give up some of that to the brand they work for).
Which brings up something else. Could a company potentially build a step-down converter to use to charge my Leaf for free? I'm not really sure how much hardware it takes to step down voltage that significantly.
The Supercharger uses a different plug, though, which I don't know anything about. The voltage (440v) and speed indicate DC charging, which J1772 doesn't support. (The Leaf uses the CHAdeMO connector for DC charging)
You can clearly see the dealership in the mall in the Blues Brothers for example ("The new Oldsmobiles are in early this year!")
It looks like Tesla will specialize in a handful of types with iterative improvement which will work in perfect tandem with this approach. Kinda like Apple's hardware.
As an aside, it's really, really weird to see comments allowed for what is basically a press release.
For the attention that is required to encourage people to take a leap from gasoline to electric, it makes more sense for them to focus on their own stores - rather than working with third party dealers.
That's why Apple has their own stores too.
Look how that has worked out. Most profitable retail space on the planet, by square feet.
A more valid reason is that car companies should be able to sell their products anyway they like. The purpose of government is not to hand out protected status to existing merchants.
Of course, I can't pretend that government isn't already giving Tesla a lot of handouts.