Why Doesn't Tesla Use Dealerships To Sell Their Vehicles?

Having been through the Model S purchasing process, I think we can take Tesla at its word that the goal is a better customer experience.

Buying a car is unpleasant, as we know. You have to negotiate, which takes time; sometimes, sit in a semi-boiler room where they try to sell you Simonizing, an extended warranty, and a bunch of accessories you don’t need; and you get treated like a piece of meat. And if you didn’t get a smokin’ deal, you fret that you overpaid and were a sucker.

By contrast, buying the Model S was like buying something on Amazon. You click the button, pay before you get there. And just pick up the car. I was out of there in 5 minute and never had any unpleasantness. 10x better than buying our Lexus experience, about 3x better than a Mercedes dealer that delivered to our house but still had a lot of negotiation drama. 30x better than our Honda Odyssey where I couldn’t even get a ride back from the dealer after my trade-in, and it took 2 hours to get out of the dealer and 1 week just to confirm the “Internet Price.”

And with the Tesla experience, you know you paid a “fair” price since everyone pays the same price.

Beyond that, I can’t imagine there are any great benefits to Tesla:

• First, they are clearly overwhelmed with the logistical nightmare of directly delivering 20,000+ cars to end customers. I didn’t even get a notice until the night before it was ready to be delivered, and the location was wrong. It felt like a start-up. Dealers, in theory, could take the burden here better perhaps. The reason companies of all sorts in all industries have channel partners is in large part to not have to deal with the logistics of dealing with tons of tiny customers.
• You can’t just go buy one today. This isn’t that cool. There are some narrow exceptions — you can now in some cases buy a Tesla Model S from a showroom, but they have very few and aren’t held in traditional inventory. In most cases, you have to wait for your gratification.
• It’s really hard to talk to anyone. I couldn’t get any of my pre-purchasing questions answered by email. Too few account reps. With dealers, if nothing else … it’s very easy to talk to someone.
• They still have to build ‘showrooms’ to let people see the cars and take test drives. The showrooms can be different — nicer and smaller. But they still have to be built, and Tesla has to pay, not the dealers.
• They still have to service the cars in some fashion, albeit the plan is that a Tesla requires far less service than an ICE car. Dealers take a lot of the load of servicing off the traditional car manufacturers.
• And financing and especially trade-ins are still sub-optimal with Tesla. There’s no true lease program and trade-ins don’t really work.  They just refer you a third-party that gives you a low-low-low ball price, and you can’t really just drop the car off when you get the new one (the real joy of the trade-in). Dealers can handle all this.

In the short-term, there are other benefits to Tesla but I’m not sure they matter that much in the medium and long term:

One clear benefit to Tesla in the short-term is there’s no need to build or carry any unnecessary inventory. So there shouldn’t be any waste, i.e., any need for massive discounting of the Plum Crazy Purple with Orange Leather One than no one wanted to buy. But I think this isn’t worth it, because people really just want to buy that day, not wait, and you can predict the most popular combinations.

Also, until recently, the process clearly generated substantial and important cash-flow for Tesla. Tesla would collect a $5,000-$20,000 deposit months before delivering your car. Now, though, Tesla doesn’t need that cash ahead of time, and the deposit has been reduced to $2,500.

At scale, they may save some money going this way. But even then, I’m not sure. Most things get pretty efficient over time.

All-in, the real goal of Tesla seems to be to do something just an order of magnitude better than anything you’ve experienced before. If you don’t get this right at the purchase time, the goal would fail no matter how good the car. So I think that’s their uber-goal. Be 10x better.

The Model S isn’t great just because it’s electric. It’s great because it’s so much better.

This part too is 10x better, or at least, on the path to getting there:

We all just want to order our stuff on the Internet for a great price, have it shipped to us for free, and never have to talk to someone unless we want our questions answered, if we can.

…

Balaji Viswanathan, Founder Zingfin.com

Tesla motors have written a blog post on this topic. Here is the synopsis.

1. They don’t want their electric cars lost amidst a sea of gasoline cars and lose their key differentiation. Given the low volumes of Tesla, the traditional dealership might not have enough motivation to push the electric cars.
2. Control the experience. They have taken a leaf out ofApple AAPL -0.42%‘s notebook and plan to sell the experience of driving. Just as Apple stores have substantially changed the nature of gadget retail, Tesla wants to use the store to educate the customer and provide superior customer service.
3. No inventory. Traditional car distribution is centered on a huge inventory creation. Car manufacturers produce a large volume of cars and you drive away one of them home. Tesla have a long backlog and need not keep an inventory.
4. Build the right product-market fit. Premature scaling can be really lethal for an innovative company. Tesla wants to get the right product-market fit before scaling it further. To get the right product-market fit, it needs to be as close as possible to the customer. The stores will be the test bed for their experiment on understanding customer and building the loyal initial adopter.

The Tesla Approach to Distributing and Servicing Cars

This question originally appeared on Quora. More questions on Tesla Motors Inc.:

• What does Tesla need to do to go mainstream and why?
• Why did Tesla Motors decide to pay back its $465 million loan from the Energy Department early?
• Why did Tesla stock drop on May 31/Jun 3 2013, after they announced they’d build more charging stations ?