North Carolina has plans on banning direct sales of Tesla motors’ cars because Tesla does not have deals with dealerships in the state. This law has in many ways been labeled as “unfair competition”, “protecting customers” and “customer service first”. Words and phrases aside what are the pillars on which the above phrases stand?
- Unfair competition:
Sure Tesla selling directly to customers by the click of a button on the internet is unfair competition. Read it as unfair competition to dealers whose sole purpose is to be middle men between a company and customers. They rare add any value, always seek out best ways to maximise their revenue and profits and never really care about the sold cars. When I tried to purchase a car I was always pulled into various situations that I can phrase as “unfair”. Trying to add unnecessary fees, add ons and asking me to go for financing and then ultimately asking me to purchase a new car – all these have happened in incremental fashion at various dealerships I had visited. To that extent I ended up going to dealerships, sitting around for 3-4 hrs and then returning without a car because the initial price and the final price were quite different.
How does Tesla sell? You book your car online just the way you purchase electronics. Any issues you have get resolved over phone with customer service or you bring it into the service centre and they service the car. Towing is not that different from the usual cars. How often do you actually have a service centre right around the corner from where your car broke down?
Where is unfair competition in this segment? Here’s where it is. The only remaining cost optimisation without hurting the customer is reducing the number of layers before the car gets to the customer. i.e; the dealerships getting eliminated. Car companies do not compete with dealerships. There is no real need for dealerships to exist in the first place. Tesla competes with dealerships in the same way Apple competes with Fry’s.
Labeling it unfair competition would be like Bose labeling Microsoft competition because they share the same floor space at Fry’s. I had a chance to visit two of the Tesla showrooms and I must say that it is one of the nicest places to be. No one pressures me to buy the car. How would you like that taken away?
- Protecting Customers:
I can only read that as mosquitoes petitioning the govt to protect humans to protect customers. If a customer no longer wants to be a customer they are not customers. This statement assumes that the dealers want to protect the customers. Read it as dealers trying to protect their revenue sources by eliminating competition through lobbying. Try putting this to test by asking customers. Close your shops for 1 week and see how customers react. Try comparing Tesla sales to those of dealership sales for similar category cars. Oh you can actually – Tesla outsold Audi, BMW and Merc in the first quarter of 2013. Now whether this is sustainable over the year is not known. If this is just a flash in the pan then Tesla deserves to die. In which case exactly what is this legislation trying to solve?
If Tesla does not provide good service to its customers it will be restricted to existing sales and the word of mouth will kill it. Tesla will get sued if it does not fulfill its obligations to the customers. Does it look like USA does not have enough lawyers? Does anyone thing Tesla does not figure that into their business plans?
Customers can be protected in a multitude of ways without actually forcing the dealership model. I would love to see those laws enacted with fairness. I’d love to see laws that actually protect the customer – let us start with the outrageous EULAs.
- Customer service first:
Tesla, if it wants to survive, has to put the customer first. Every Tesla owner I’ve talked to has only good things to say about the car. Ofcourse Tesla is small fry in the car market and it remains to be seen if they can sustain this level of engagement but here’s the thing – the worst they can get to is the existing car manufacturers’ status. If that’s the case Tesla’s high price point will kill it anyway. We’ve seen what happened to Microsoft’s Windows 8 when they did not put out a compelling product for customers. Customers know what they don’t want. They don’t necessarily know what they want. No one out there would want bad customer service. Given a choice they’d flock to better service. That’s exactly what I did when AT&T was not sensible about its service. I switched the carrier and went to a smaller one.
If you have to legislate compulsory customer service go for legislating the car company to customer relationship across the board. It makes no sense to mandate a dealership because the dealers only act as middlemen.
What will happen if dealers don’t exist?
The first thing that will happen is Tesla’s profits will go up and perhaps the costs will come down, but on a bit because the car itself costs >$60K. The problem, if at all, would be that there will be few service centres available to service the cars. Sure that will put off some people and Tesla has to solve this problem before it steps out of being a lifestyle company. At the moment Tesla is rather small to be able to plan this well and on such a massive scale. When it grows it will be forced to expand the service centres if it wants to go solo.
Tesla needs to have feet on the ground instead of just call centres. Towing will be the insurance company’s responsibility anyway so that is not an issue. Tesla doesn’t really have the financial tie ups so fewer people will be able to avail credit for purchasing the car. Obviously leasing options will help but still this is limited. This is where the dealerships have an edge.
Dealerships have feet on the ground and are generally one node away from customers. Tesla has a disadvantage here so if dealers can ride this wave they have a point to prove. If they can help customers with:
* Leasing options
* Finance options
* In person experience better than Tesla
the dealers will win the battle. That would send a message to Tesla. Then again am I asking the dealers to evolve? To mutate? To fundamentally stop being leaches?
What should Tesla focus on?
Here’s my take on the problems that Tesla needs to solve to get to the next level.
* It needs to increase the charging stations but I get the feeling that this is only temporary fix to the fundamental problem of instant range boost (aka pump some petrol)
* The bigger and better problem to solve is storage capacity. Extending the range from the current 200-300 miles per charge to 500-600 miles would make this an appealing car to the masses
* Not all the problems need to be solved through battery and materials breakthrough. One example is to understand that the car is a transportation medium. As such it should be able to understand what its next task would be. For example if the car only has a 100 Mile range, drive back and forth between work and home is not an issue. Having a means (integrating with travel plans on the phone for example) to find out the next task will help better schedule charges and thus reduce irritations due to sudden death (aka zero charge) mid way between Los Angeles and San Diego.
* Present the economic viability of the car. Tesla has already done a brilliant job at showing some of the economic savings of using the Model S but that is for the filthy rich who use 100 dollar bills instead of tissue paper
* The obvious point of reducing the price to below the $25K mark
* Please do not compromise on the quality. I don’t like driving in the Honda Civic to San Diego because of the horrendous road noise. I prefer my Audi A6 (yes I own an Audi)
* Redefine the car as a lifestyle product and thus differentiate from other cars. The missing piece of the car spectrum is the lifestyle product that allows you to perform tasks/duties/have fun. Tesla has the unique capability to fulfill all these roles if only the massive screen centres around the driver. A GPS takes you from A to B but how about understanding the routine? How about suggesting groceries and planning for the best route? How about planning for picking up the kids? How about posting for a battery charge for the coming weekend? How about telling the user that driving from LA to SF is a risky proposition but here are ways you can reduce it (charging stations, preemptive charges, interesting locations enroute as distractions)? In every case the car understands the context and not just the route.
I have NOT purchased a Tesla and for my income, my circumstances and my mindset I consider it too expensive and extravagant. I do love the ride of the car, the amount of space it offers, the next to zero road noise and zero engine noise. In my opinion after the Electronic Fuel Injection the next major step in automotive industry is Tesla Model S (not the Roadster). Come to think of it, the car has not fundamentally changed since the first combustion engine got tossed into it. I am fighting for Tesla purely because it has the potential to change the car industry that has been stagnant and content with reaping the benefits of inertia.
Tesla also runs purely on electricity and that has huge implications. It is easier to optimise electricity generation and transmission than to change how we consume fossil fuels. Switching out the source of electricity from dirty coal to pseudo clean nuclear to clean solar/wind/tidal sources is a lot easier and transparent to the end user. Heck it is also scalable since various countries can mix and match the various sources of electricity they can produce. Nordic region can use the geo thermal energy while countries close to the equator can go for solar power. Electricity is the most atomic form of energy.
If we cannot realise this and sweep everything out due to politics and leeches that plague our world, we as humans will be presented only one choice eventually – extermination. Tesla is one of the few instances where economics and common sense converge to form a cool product that can’t be labeled hippie. Who in their right mind would want to douse that flame? Apparently some folks in NC do.