By on October 25, 2013

tesla-model-sa_rIt seems as of late that Tesla is becoming to cars what Apple already is to computing, smartphones, digital music players and tablets. Thus, it should be as no surprise that the automaker has brought aboard former Apple vice president of Mac hardware engineering Doug Field to help them develop “insanely great” new vehicles.

“Doug has demonstrated the leadership and technical talent to develop and deliver outstanding products, including what are widely considered the best computers in the world,” said Tesla CEO Elon Musk in a press release. Musk went further to state that the future of the automaker is dependent upon engineering talents — such as the kind Field would bring to the table — that can help bring “the most innovative, technologically advanced vehicles in the world” to the masses, especially the kind that will be sold for $35,000 at the nearest Tesla boutique in the near future.

Field’s latest foray in the tech world marks a return to the automotive industry: His career began with Ford as an engineer, then a turn as CTO for Segway before segueing to One Infinite Loop in 2008. From there, Field led development on the MacBook Air and Pro, and the iMac.

“Until Tesla came along, I had never seriously considered leaving Apple,” said Field in the same press release. “I started my career with the goal of creating incredible cars, but ultimately left the auto industry in search of fast-paced, exciting engineering challenges elsewhere. As the first high tech auto company in modern history, Tesla is at last an opportunity for me and many others to pursue the dream of building the best cars in the world-while being part of one of the most innovative companies in Silicon Valley.”

Get the latest TTAC e-Newsletter!

101 Comments on “Former Apple VP To Aid Vehicle Development At Tesla...”


  • avatar

    He has his work cut out for him, especially if Tesla devotes capital to their own dealership network, capital which will be sorely needed for product development.

    • 0 avatar
      gmichaelj

      Perhaps you can help me with this: how could a large group of independent dealers do a better job of raising the capital and hiring the management than Tesla could?

      I’m not trying to annoy you, I just think that Tesla could just as efficiently raise the capital and hire the managers as franchise dealers could. So I think the question here is – What is the economic value that franchise dealers could add that Tesla couldn’t?

      Right off the top I see an advantage to the dealers, as a group, in that there would be a variety of selling “solutions” A competition. But I also see a downside in lack of consistency for the “buyer experience” and the economic value added going to the dealers at the expense of the seller/buyers

      This isn’t brain surgery – it’s only selling cars where someone else has done all the difficult engineering/manufacturing.

      • 0 avatar

        To answer your question you might ask yourself why the current automotive OEMs felt it necessary to recruit a dealer network rather than to try to do it themselves? AND they still feel that way. If you do the math it becomes readily apparent that the number required for a dealer network is quite daunting. This is money that can’t be used for product development if it is used for a factory owned dealer network. Tesla will go as far as they can until market realities stare them in the face. Corporate owned dealerships have universally failed. Dealerships are owned and run by entrepreneurs. Corporate people are employees. IF they were entrepreneurs, they wouldn’t be corporate employees. Corporate employees don’t run dealerships well. Never have. Never will.

        RE: “But I also see a downside in lack of consistency for the “buyer experience” and the economic value added going to the dealers at the expense of the seller/buyers.”

        With independent dealers there would NOT be a consistent buyer experience.” That’s the point. If a consumer doesn’t like one experience, they can shop for another. As far as the economic value is concerned: Don’t forget about the economic costs to achieve the economic value. OEMs have historically spent more in costs than they have received in value. Perhaps a new startup like Tesla can do this better than other OEMs in the past? What are the chances? With an OEM owning its own distribution channel, how would that save a consumer/buyer any money?

        What isn’t brain surgery? Ever operated a car dealership?

        • 0 avatar
          gmichaelj

          * “If you do the math… required for a dealer network is quite daunting. This is money that can’t be used for product development ….”

          Sure, but why can’t an affiliated Tesla Sales, Inc. raise that capital separately?

          * “Corporate owned dealerships have universally failed.”

          Ok, If you say so, I don’t know about this. I do agree that entrepreneurs are generally harder working than employees.

          No, I have never operated a car dealership. But I have worked with a three different owners as they have set up their family limited partnerships. Intelligence isn’t the dominant trait they display, instead what is striking is how dismissive they are of the opinions of their top managers, wives, kids, etc. They don’t seem to me to be so much smart as they are single minded greedy.

          The key to me in running a small business is Sales, Sales, Sales, then taking it to the next level, hiring and retaining competent management. Which does take brains, but not a brain surgeon. Drive.

          • 0 avatar
            Pch101

            Most manufacturers don’t retail their own products. I don’t see why it’s so hard to believe that automakers are not necessarily ideal retailers.

            Retailing and production are different skill sets.

            Auto retailing has even lower margins than auto production, which makes it unattractive to major corporations.

            For a major automaker that needs hundreds or thousands of stores, the cost of setting up the network would be prohibitive.

            It’s one thing for Tesla to sell a few cars over the internet and rent a few low-cost storefronts in order to promote them. It’s quite another to spend billions of dollars to set up hundreds of stores that are capable of moving hundreds of thousands or millions of vehicles, only to clear a net profit that averages just over 2%.

            It’s simply not worth the bother or expense. Franchising is an easier way to build a large sales network that will dedicate itself to your product and absorb the overhead and management headaches.

          • 0 avatar

            How would they raise that capital? Who would finance it for Tesla? A better question might be, “Why would anyone finance a slew of dealerships for Tesla. What’s to gain? What’s to lose? What’s the track record for such endeavors?

            They way things work in the model that has become typical, is that the dealer is the customer of the OEM, NOT the end user. The end user is the customer of the dealer. If you think this through step by step you can figure out the financing issues. For example, Tesla produces vehicles. Who pays for those vehicles after they are manufactured? Would Tesla expect to sell them to a lender, who would own them until they are sold to a end user? Or would Tesla try to build to order, shutting down the factory when they don’t have enough orders to keep going, then starting back up again if orders come in?

            About your opinion of owners… I assume those owners you mention are car dealers? And you don’t think they are smart? Yet, they were the ones who scraped, saved, invested, and borrowed their way into business and have survived. And you are surprised they don’t run their business like a democracy? I suggest that YOU start your own business and have YOUR family and employees second guess you. Better yet, be transparent. Let them know your net costs as well as your profit numbers and see what happens.

            After YOU go through what an entrepreneur goes through to get into business and survive I’d like to hear YOUR response to someone referring to YOU as “greedy.”

            Ford and GM are full of MBAs and bright minds. You would think they could operate car dealerships wouldn’t you? Yet, entrepreneurial dealers with high school educations have a MUCH better track record of operating dealerships successfully. Wonder why that is? What is the piece the smart corporate guys are missing? What are the blog participants here, who are mostly employees of others, missing about the experience of being an entrepreneur? When you used the word “greed” it was a tip off.

          • 0 avatar
            gmichaelj

            @ ruggles @PCH

            I’ll take back greedy, so we can concentrate on the economics / entrepreneur side of this and value add

            R “How would they raise that capital? Who would finance it for Tesla? A better question might be, “Why would anyone finance a slew of dealerships for Tesla….”

            So generally, you put together a business plan (“we can cut out the middle man and keep the money for us”), then do some forecasts and go on road show with your investment banker and raise the capital from the wealthy. EDIT: and this would include money to hold the inventory for the days/weeks it takes to sell so they don’t have to make to order.

            PCH “…It’s quite another to spend billions of dollars to set up hundreds of stores that are capable of moving hundreds of thousands or millions of vehicles, only to clear a net profit that averages just over 2%.”

            I don’t know if your 2% is annual or not, but why would it make sense for an individual businessman to do this if it won’t work for Tesla?

          • 0 avatar
            Big Al from Oz

            @ruggles and Pch101
            Vehicle manufacturers can retail. I think if you look at the size of the investment of a motor vehicle and look at other manufacturers who sell products of high value you will find the manufacturer does in fact retail.

            Home builders and aircraft manufacturers tend to retail. If you manufacture a toaster the manufacturer will not retail. It seems more consumer biased products are sold by a specialist retail outlet.

            I do think that motor vehicles (especially the cheaper ones) at the moment are borderline for using specialist retail outlets vs manufacturer retail outlets.

          • 0 avatar
            Pch101

            “I don’t know if your 2% is annual or not”

            It’s net income as a percentage of revenue. Any time period will do.

            To your average neighborhood entrepreneur, clearing $1 million in annual income (or whatever it is) would be a pretty decent living.

            But to a major corporation, those figures are chump change and a waste of time.

            Most companies that are successful don’t try to do everything. They focus on particular products and a particular stage of the supply chain, and become as good as they can be at those particular skills.

            Most manufacturers don’t spend much effort on retail, if at all. Production and retail are different skills, and it’s not common for firms to excel at both. Some are exceptions, but most aren’t.

            This article from Reuters might provide some insight. In Germany, Mercedes operates more factory-owned dealerships than BMW or Audi, and it wants to reduce its dependency on that approach. “Car dealerships are typically a 2-4 percent margin business at best, which drags down overall margins for luxury manufacturers.”

            http://www.reuters.com/article/2013/05/22/us-daimler-mercedes-dealers-idUSBRE94L0AV20130522

          • 0 avatar
            gmichaelj

            PCH

            Thanks for the MB article. Here is a nugget that I was looking for:

            From the article “By selling off more outlets, Mercedes could cut its 16,000-strong German retail staff and associated costs including vacation pay, Christmas bonuses, corporate pensions and profit shares – perks that most franchise staff can only dream of.”

            There is the economic value add (or subtract) I’m talking about. The sales staff will be replaced by a franchise staff that will get paid less than the MB staff for the same amount of work: efficiency. Or some less attractive term if your a Sucker, uh, Employee.

            Also from the article “Car dealerships are typically a 2-4 percent margin business at best, which drags down overall margins for luxury manufacturers.”

            This is half-baked analysis. Yes, the overall margin is lower, but the risk isn’t the same. So the returns cannot be equated. IF the dealership and the manufacturer had the same cost of capital, then that would be true. But the writer didn’t look into that. The MB dealership should have a lower (less risky) cost of capital (debt and equity) than the MB manufacturer. So the dealership return doesn’t have to be as high. On the other hand, the manufacturer has a huge capital investment it has to keep running and technologically current.

            Nevertheless, the comparison in our case should be between the Tesla dealership and the independent dealership. The weighted average cost of capital should be roughly equal IF the overall risks are the same. I don’t think the customer cares that much who he buys from.

            However, I think Tesla would have a lower cost of capital because they’d be able to finance at the Wall Street level and not at the local or regional bank level. Also, they’d have a larger customer base, unlike a dealer stuck in a town that just lost it’s Army base (or whatever). And would be less dependent on a small managerial staff. Less risk – lower borrowing rate.

            Also, it looks like Tesla is going with a smaller store and that could save a lot of money, if say most of the inventorywas at a regional lot (so variety is just a few miles away). “Sir we have this very car in blue with the white interior, and can take you to see it.” or whatever

          • 0 avatar
            Pch101

            “This is half-baked analysis. Yes, the overall margin is lower, but the risk isn’t the same. So the returns cannot be equated.”

            You’re really not getting this. The low margins that come from retail are reducing the value of Daimler’s stock. Investors expect better returns than that.

            According to NADA, the average dealership in the US had pre-tax profits of under $900,000. Compare that to Toyota, which had pre-tax profits of $14.9 billion, or Ford that earned $7.7 billion.

            Put it another way — what the average dealership earns in a year, Toyota earns in less than one hour. The high six-figure income is good for the average guy in your town, but it’s chickens**t to a multi-billion dollar business.

            The retail side of the business produces a lot of brain damage and management headaches. The reward for all of that effort is a lower stock price. It makes more sense to avoid it, at least in the US where car prices are low and the market is highly competitive.

          • 0 avatar
            doctor olds

            @Ruggles there are some very smart people inside the carmakers and yet, most know (or should) that wholesale people “NEVER” make it in retail.

            As PCH wrote, the skill sets are different, for one thing.

            I will also say that my experience suggests that corporate people don’t have the tough entrepreneurial attitudes necessary to be a successful dealer.

          • 0 avatar
            charly

            @Pch101

            Retailing is going through a revolution caused by the internet so i wouldn’t be surprised if most retailing would be done by manufacturers in the near future.

            Electric cars don’t need service centers so the natural retail outlet for an electric car is the mall which makes setting up cheaper. You also don’t need thousands of stores as selling and servicing is decoupled.

            People buy over the internet. They use the shop as exhibition hall.

            @ruggles

            Batteries are most of the cost of an electric car. They can be much easier added to a car than for example the motor of a normal car. They also age more than the rest of the car so it makes sense to added them only at delivery to the car and that part will absolutely be build to order and with it most of the car (in $) .

        • 0 avatar
          Luke42

          @Ruggles:

          You’re missing the point. Musk doesn’t think the dealer network approach will work, because dealers make most of their money by servicing the car.

          Musk (arrogantly?) believes the EVs will require almost no service to keep running – windshield wipers, tires, and chassis lube regularly. And then maybe ball joints and batteries every 10 years.

          Is that enough service work to interest or sustain a regular car dealer? He doesn’t think so, and he’s a crazy mo-fo who’s out to change the world, so he decided to change the law rather than try to convince dealers to sell his product. As I said, he’s a crazy mo-fo.

          So, is he right? Can a car dealership franchise succeed without oil changes? I’d love to hear your guys’s take on that one.

          • 0 avatar

            Dealers don’t make a lot of money on service. They do well on warranty work, paid for by their OEM. They lose money on oil changes, typically. Most dealers don’t do a lot of customer pay. Body shops are pains with everything dictated by insurance companies. The parts business isn’t easy either, especially for dealers in the wholesale parts business. This is a business I never understood… selling at a thin margin to be competitors who then expect me to finance their jobs until the end of the month? Screw that. A lot of dealer fixed op gross profit comes from internal accounts, which is merely penciling GP from the vehicles sales departments to fixed ops.

            A dealership CAN succeed without a fixed ops department. Independent used car dealers do it all the time. When supporting a new car franchise it really helps to have a used car department.

          • 0 avatar
            charly

            But that is the problem with Tesla. They exactly know how good the battery is and the dealer doesn’t which makes the second hand market owned by Tesla. There is also the whole refurbishing that can be done with the batteries

          • 0 avatar
            Pch101

            The service angle isn’t really a factor here.

            There are several motivations for Tesla to go with the vertical (no dealer) model, but I’ll limit it to four:

            -Musk is trying to avoid what is referred to in technology marketing as “the VAR problem.” A dealer is more interested in making money than in selling one specific product. With its low volumes and unusual offering, the last thing that Tesla needs is to have an independent seller that migrates the customer to a used BMW on the lot or a Mercedes at an affiliated dealership. Tesla needs a staff that will focus strictly on his product, and on no other.

            -The company is being set up for a flip. Buyers of startups don’t necessarily focus on profits, so much as they do on growth rates and gross margin. By selling the cars directly at retail, the gross margin is inflated, which increases the company’s value to a potential buyer.

            -When grooming a startup for sale, it’s wise to leave some opportunities for a value-added play. The chance to build a larger sales network post-sale fits into that category.

            -Dealers require captive financing. Tesla can’t afford to provide it.

            Three of those four positions are a byproduct of Musk’s technology background. The marketing ideas from tech, and the emphasis on certain financial metrics is driven by how tech companies are valued when they’re being positioned for sale.

        • 0 avatar
          charly

          If you do the math for an electric car you see one giant issues for a car dealer. They don’t need a lot of service and the service they do need outside tires is often so complex that it can’t be done by a local dealership.

          Then there is the second big issue with electric cars. The trade-in.
          The price of an electric car is mainly battery. It is also to only thing that is likely to break. Second hand price is almost completely dependent on the state of the battery, which Tesla knows exactly and a dealership wouldn’t. So Tesla head office knows the right price for the trade-in, local dealer wouldn’t.

          Third issue is the second hand market.
          Battery is most of the price of a second hand electric car so overhauling them make financial sense. Tesla can/will do that. A dealer can’t.

          If you do the math than it is obvious that electric cars are not ICE cars and that independent dealerships for electric cars don’t even work. The wheeling and dealing with the trade-in is simply not there and with it the need for that entrepreneurship.

          • 0 avatar

            RE: “The value of a pre-owned Tesla is the state the battery is in. Tesla is the only one who knows that state and they know it pretty exact. Pre-owned Tesla’s wont be auctioned but sold back to tesla.”

            The value of a used Tesla is determined at auction. Tesla has NO WAY to control where its vehicles go after they are sold to end users. And YOU have NO WAY to predict it.

          • 0 avatar
            charly

            True, but they know the state the battery is in so they can offer a better price. At the fact that Tesla’s will still be expensive cars after 6 years so the new owner wants guaranties which Tesla can over.

        • 0 avatar
          Type57SC

          OEMs did not “feel it necessary” to have independant dealers. Ford didn’t have the capital (or sky high valuation of tesla) and then the OEMs abused their market power enough to warrant legal protection of the dealers’ investments. that was 50-100 years ago though. Independant retail is a fact of life for them now, but doesn’t have to be for Tesla. I think you’re well aware of this, so I’m not sure why the trolling.

      • 0 avatar
        doctor olds

        Domestic makers had factory stores (and distributorships) in the retail auto business in years past. They were discarded years ago. In fact there was a general axiom that wholesale (manufacturer field sales) people NEVER succeed when they try to run a retail dealership. There are exceptions to every rule, but the point is that it takes a pretty good businessman to run a dealership and stay strong through the business cycle. Employees of a distant central office never will have the interest of an entrepreneur whose own money is on the line.

        While my perspective is a bit dated, I think it is still true that a prospective dealer candidate must provide at least 25% unencumbered working capital to be approved as a dealer-operator. Which, btw, is a personal service contract between one individual and GM. Can’t speak for any other companies, but bet they have similar contractual arrangements. Unencumbered capital means it is not money that has to be paid back on a specific schedule, generally therefore not borrowed money. The rest can be borrowed.

        Individual entrepreneurs bring their own cash, borrow the rest,if needed themselves. All the carmaker has to do is sign a sales and service agreement with the dealer operator. He or She brings the cash to capitalize the dealership business.

        If Tesla wants to build a lot of brick and mortar stores, they will have to raise an immense amount of capital themselves rather than the system in place for other companies that leverage individual entrepreneur capital and talent.

  • avatar
    jpolicke

    I hear his first project will be to integrate Apple Maps into the navigation system.

  • avatar
    E46M3_333

    “As the first high tech auto company in modern history,…”

    BMW, Mercedes, Porsche and others might take exception to that statement.
    .
    .

  • avatar

    Interesting how Elon Musk keeps saying that Tesla does things differently than Detroit, yet keeps hiring people who cut their teeth working for the Big 3.

    • 0 avatar

      I think he’s looking for a balance, and complete rookies to the car business are more trouble than they are worth. Someone with car experience, tempered with time in the designer gadget business, might be the balance he needs. I think Musk is practical enough to know when he needs someone with knowledge he doesn’t have. I suspect he’s already bumped his nose enough to know to ask for help from those with experience he lacks.

    • 0 avatar
      jz78817

      “Interesting how Elon Musk keeps saying that Tesla does things differently than Detroit, yet keeps hiring people who cut their teeth working for the Big 3.”

      he’s right and wrong. Tesla is doing things differently than Detroit since they’re new and don’t have 100 years of history for people to judge them on. “Detroit” has and has had the technical capability to do a Model S, they just don’t have the ability to price them at a profit-generating level.

      Tesla is just like “Detroit” since they’ve staffed up with experienced automotive designers and engineers. Tesla isn’t just a bunch of Silicon Valley wonder kids who woke up one morning and decided to start making cars. Only clueless tech-wannabe-geeks believe that.

    • 0 avatar
      Big Al from Oz

      @Ronnie Schreiber
      You will find that in most industries.

      It’s called underpinning knowledge. The Big 3 workers that Telsa are employing can offer insight and knowledge that Telsa needs.

      The basics of wanting and owning a vehicle is still the same whether it’s an EV or a ‘normal’ vehicle.

      What other workers does Tesla employ and from what nations with what backgrounds?

      • 0 avatar

        If auto OEMS can retail they have yet to prove it. As I’ve said previously, there is a BIG difference between an entrepreneur and a corporate employee. The difference begins with their level of commitment and motivation.

        • 0 avatar
          Type57SC

          You seriously believe that Penske and AutoNation employees are more committed and entretrenuerial than Tesla employees? It’s the mega dealers that are taking share, and they are very, very corporate. that’s why they are taking share (hiring well, process orientation, long term orientation, aggressive growth targets rather than just funding the owners lifestyle). I don’t work for dealers or an OEM. Just a long term commenter. Are you an employee of a NADA PR firm or something?

  • avatar

    There is a major difference between being a corporate employee and an entrepreneur.

    There are different methods to calculate the profitability of a new car store. Net profit to gross sales is one. ROI based on investment is another. Considering the leverage available under the right circumstances, ROI can be quite compelling to an entrepreneur. For example, if I can take $300K unencumbered, rent a building, borrow working capital against assets, get a floor plan for inventory, and net $300K in a year while paying myself $100K salary and charging off numerous expenses to the business, I might take a shot. But if things don’t work out, I lose everything. To achieve the leverage one has to sign individually, collectively, and severally. They take the assets you pledged, plus everything else you have. Those who can’t accept this risk need to stay employees working for and complaining about someone else.

    • 0 avatar
      jz78817

      The “TL;DR” of your post is “being an entrepreneur means convincing other people to let you play with their money.”

      • 0 avatar

        RE: “The “TL;DR” of your post is “being an entrepreneur means convincing other people to let you play with their money.”

        Exactly, unless you have your own cash. Investors tend to want to be paid first, or they will find something else to do with their investment capital.

        • 0 avatar
          jz78817

          unfortunately, getting people to let you play with their money generally means you have to be a snake with an enormous ego. Not the kind of person I want to be, so I’m content to stay an employee comfortably beneath you.

          • 0 avatar

            Getting people to let you play with their money generally requires having a track record of success in the particular business you want to borrow for. For example, it would be much easier for me to get a loan to buy a car dealership, with less equity required, than if I wanted to buy a cattle feeding operation, something I know nothing about, even though I like to eat beef.

          • 0 avatar

            RE: “snake with an enormous ego.”

            These “snakes” are the people who provide employment for people like you.

          • 0 avatar
            jz78817

            “These “snakes” are the people who provide employment for people like you.”

            and make sure we know it.

          • 0 avatar

            RE: :Author: jz78817
            Comment:
            “These “snakes” are the people who provide employment for people like you.”

            and make sure we know it.”

            Try having a productive society without those folks. And keep reminding yourself how superior you are because you aren’t like them. Hell, cause them to go away and you can starve. Sounds like you’d be too lazy to feed yourself if someone didn’t do it for you.

          • 0 avatar
            doctor olds

            “getting people to let you play with their money generally means you have to be a snake with an enormous ego.” Ego, most of the time, yes. Snakes do not enjoy long term success.

            actually, all it takes it to convince them you can generate the return on their investment they look for, that is all.

  • avatar
    jz78817

    “As the first high tech auto company in modern history,”

    WTF.

    This hiring seems appropriate given Musk’s Steve-Jobs-level ego. I daresay the Volt is “higher-tech” than the Model S. At the very least, GM co-developed a different cell chemistry while Tesla just buys boatloads of the same 18650 LiIon cells in most laptops and crams as many as possible into a car.

    • 0 avatar
      SCE to AUX

      “Tesla just buys boatloads of the same 18650 LiIon cells in most laptops and crams as many as possible into a car.”

      Sure, but nobody else did it.

      I’m amused by how many people think this is easy. This approach is genius. If you’re creating a new car company and a new car, you don’t need to also invent new fuel. So they started with the Lotus body for the Roadster, and commodity 18650 cells. Now they’ve graduated to doing the coachwork and suspension also, and only the cells remain a commodity. I’m sure they’ll get custom cells someday, but for now, they’re managing risk brilliantly.

      Just how easy do you think it is to connect, manage, charge, and safe up to 10,000 lithium ion cells in a roadworthy vehicle?

      • 0 avatar
        jz78817

        who’s saying it’s “easy?” Hell, just the act of putting a car on the market from a clean-sheet design is difficult as hell. I’m just tired of the Tesla-philes acting like Elon Musk has made “Mr. Fusion” a reality.

  • avatar

    Tesla does a little more than just cram Lithium Ion batteries into the floor of a car. They have developed a rather ingenious cooling method.

    But I agree, Tesla isn’t quite as high tech as they let on. BUT they DID do it first. And they DID engineer the takeover of the NUMMI facility. And they HAVE sold thousands of vehicles so far. AND the vehicle is drop dead gorgeous even if it looks somewhat like the Porsche sedan, or vice versa.

    Both GM and Tesla have guaranteed residual values at relatively high values to move VOLT and Model S. We’ll see how that works out for them both.

    • 0 avatar
      jz78817

      I’m not seeing the “engineering” required to buy a closed plant.

      • 0 avatar

        I imagine there’s a lot you don’t see.

        • 0 avatar
          Luke42

          Agreed.

          Setting up a car factory strikes me as harder than actually designing the car (though those tasks are one in the same in many ways). There’s lots of daily grind engineering to be done there, and it all has to be good.

          • 0 avatar
            doctor olds

            @Luke42- A car plant is a $billion dollar capital investment. Engineering one car line may be $3Billion in engineering cost.

            Product Engineering is by far the more difficult and important activity for the success of the product. If it is not designed well, it does not matter how well you build it.

            Carmakers pay their Product Engineers substantially more than their Manufacturing Engineers.

    • 0 avatar
      EchoChamberJDM

      Ruggles,
      You may want to look into the reasons that Tesla keeps changing its reserve methodology on its lease and guaranteed trade-in value program. Every quarter, the methodology is different. Even Merrill Lynch highlights this monkey business their quarterly earnings analysis for Tesla; other than playing with the reserves to hit a quarterly earnings #, why else would Telsa do this? Of course Tesla never highlights this in their earnings or press releases, you have to dig deep to find it in SEC filings and financial statement footnotes.

  • avatar

    I am told Tesla “outlets” have no pre-owned operation and that they instruct otential buyers to sell their trade in directly to AutoNation or Carmax. Once Tesla sells the early adopters they will begin to find out what an issue it is to not take trade ins directly. In most states there is a significant sales tax penalty if one can’t trade in their old vehicle.

    Imagine you live in Chicago and want to trade in your late model MB
    S Class, worth say $50K, on a Model S. You sell it to CarMax and buy outright. You just lost the trade credit on your MB, $50K times 9.5%. What consumer will walk away from $4750 because they want a Model S so badly? Some? Few?

    Once Tesla figures this out they might notice their “outlets” don’t have space for a used car lot.

    Or perhaps Tesla persuades CarMax to buy the trade directly from Tesla so the consumer gets the tax break? Better yet, what if the Tesla buyer sells their own trade, then brings it to Tesla to “show” the trade on paper, then sell it to the Tesla consumer’s buyer to retain the sales tax credit? Tesla will figure that one out soon enough.

  • avatar
    el scotto

    I think ole Elon knows exactly what he’s doing. Market an up-scale, exclusive car to a select few. How much money did Hermes make last year?

    • 0 avatar

      You think Musk wants to remain a niche OEM? At the moment he has cachet working for him. Once the others get involved, he won’t have that any more, and he will be selling against people who really know how to retail cars. Long term, he needs economy of scale. As it is he is a misstep away from ruin.

  • avatar

    RE: “So generally, you put together a business plan (“we can cut out the middle man and keep the money for us”),”

    You guys keep forgetting that when you cut out the middleman the middleman’s expenses don’t simply disappear. Its not like you get to keep the revenue without also picking up the expenses. And you non market participating theorists have no clue what the financing and expenses look like.

    RE: “then do some forecasts and go on road show with your investment banker and raise the capital from the wealthy.”

    And these fat cat investors will invest with you because you have a proven track record of doing this successfully and despite the fact other similar efforts have crashed and burned painfully? As an investor I might say, “lets perhaps finance a handful of these operations and see how you do with those. You have three years to prove you can do it before we advance any more money.” And by the way, we invest 50/50 in the first ones and I get my money back first. Welcome to the shark tank.

    RE: “PCH “…It’s quite another to spend billions of dollars to set up hundreds of stores that are capable of moving hundreds of thousands or millions of vehicles, only to clear a net profit that averages just over 2%.”

    I don’t know if your 2% is annual or not, but why would it make sense for an individual businessman to do this if it won’t work for Tesla?”

    The 2% is annual. Some dealerships do as much as 5%. I’ve answered your last question in another post on this thread.

  • avatar

    Regarding factory owned stores – We will NEVER know how factory owned stores perform because their results are buried in a corporate P&L while expenses aren’t allocated the same way a private dealership would. Suffice to say, OEMs avoid factory owned stores. First, they know what a temptation it is to load the factory owned stores up with inventory when the pressure is on. They know it is easy to lose all discipline, and think of the factory’s bare cost to build a vehicle rather then its dealer cost. They can then justify selling large numbers of vehicles at a loss compared to dealers who actually pay a real price. And the factory stores can be subsidized ad infinitum, as they are in Tokyo and other places where real estate costs prohibit private investment.

    • 0 avatar
      Type57SC

      And there’s the little thing called franchise law that prohibits OEMs from competing with their established dealers. I’m not sure why you feel the need to post 45 times repeating the same invalid point about OEMs thinking they can’t or don’t want to run dealerships. Repetition does not make it correct.

  • avatar
    doctor olds

    We once had factory stores and another extinct group, distributorships.

    The system evolved to the current state, with franchised dealers for every major company.

    Sales and Service Contracts, the formal contract that creates a dealer, are personal service contracts. Entrepreneurs interested in buying or opening a dealership must have a substantial amount of unencumbered capital. At GM, it is at least 25%. They must raise the rest themselves. Experience showed that individual entrepreneurs with their own cash on the line proved to be much better operators than factory store managers reporting to a boss in a zone or central office somewhere else.

    This business model provides these two big pluses- The dealer provides the capital, so the dealer body is self capitalizing, and he has real skin in the game, because it is his money.

    Musk once said he had no idea how hard the car business was until he got into it. He still doesn’t.

    Right now, he is relying on an artifice of government intervention, the opportunity to sell carbon credits to other makers to a large degree.

    It will be interesting to see how Tesla develops, especially if some real carmakers come after their niche.

  • avatar
    EchoChamberJDM

    Dr. Olds – distributorships still exist, just talk to the guys at Northeast Subaru (Ernie Boch and son), Gulf States Toyota, or South East Toyota. Some may call them a relic from when the Japanese started selling cars here in the 60s, but their current owners call them a gold mine and a license to print money. Anyone else out there questioning why Tesla would want to give up on having its own dealerships, and opened them while giving current state franchise law the big finger? Tesla will keep opening locations until someone finally has the cahones to stop granting them dealers licenses. There’s simply more money to be made when you control both wholesale and retail pricing. Unfortunately that lack of competition is bad for customers!

    • 0 avatar
      doctor olds

      Fixed operations- Service, Parts, Body Shop are a fraction, around 25% of the total revenue and profit of a dealership, give or take iirc. My direct knowledge is dated. Others may have current info.

    • 0 avatar
      doctor olds

      Well- The Japanese makers didn’t value those distributorships. Gave them away free, iirc. They are not part of the Japanese companies any more than any other dealer is part of any other car company. They are independent businesses
      Quite the opposite of what Musk proposes.

      I don’t believe any domestics have distributorships today and wonder if these businesses you refer to are the same thing. Do they sell vehicles to other dealers and also exist as a retail store?

      I’m not familiar with the function of these distributorships. Do they simply act as middle men with no retail sales?

      • 0 avatar

        Regarding the Toyota independent distributorships – They are MOST independent and Toyota resents them, although they have learned to work with the as partners in true Japanese fashion. Both parties have reached accommodation but Toyota wished they had never set up distributorships in the first place. They were able to buy back the other ones, something I suspect Elon Musk is aware of. He will be able yo build value in his factory owned outlets and sell them off when he needs the cash for product development.

        SE and Gulf States Toyota Distributorships function as an additional tier of distribution. The dealer agreements are between the distributor and the dealer with Toyota only vaguely mentioned. The distributor approves the franchises, not the OEM. The distributor buys inventory directly from Toyota and distributes that inventory to the dealers who pay the distributor. The distributor applies whatever incentives they feel they need to keep the inventory moving. The distributor often adds port installed accessories to boost their profits. The price is often somewhat different from OEM distributed regions. For example, a Toyota Camry price might be different in Wichita from that in Tulsa as Tulsa is part of Gulf States and Wichita is part of the Kansas City region of Toyota of the U.S.

      • 0 avatar
        mcs

        >> Do they sell vehicles to other dealers and also exist as a retail store?

        I don’t know about the other distributorships, but Subaru of New England doesn’t have a Subaru dealership. However, the owner of the distributorship is a Toyota (2 stores), Honda (2 stores), Ferrari, and Maserati dealer. They seem to handle the most of the marketing for the Subaru dealers.

        • 0 avatar
          doctor olds

          It seems they are a different middleman in the channel than domestic distributorships of old. They were more like mega dealers in larger cities who also supplied small rural stores.
          One Grandfather was the Service Manager of a big distributor in Saginaw in the first decades of last century. He was a Hudson fan, they sold other brands, including Stutz along the way. Loved his stories about the early years in the retail business.

          • 0 avatar
            mike978

            I am in the SE Toyota distributorship and it is a pain in the neck. They add their ‘Toyoguard” packages which are >$600 for vin etching, paint protection (wax) and a few other cheap options.

            Also it is annoying when you go onto Toyota’s website to build a car and if you enter a SE Toyota area zipcode you get taken to inventory. So I enter my father-in-laws Columbus, OH zipcode and it allows me to build a car like normal websites – choose color, look at options etc. I wished SE Toyota would get out of the way.

  • avatar

    RE: “Electric cars don’t need service centers so the natural retail outlet for an electric car is the mall which makes setting up cheaper. You also don’t need thousands of stores as selling and servicing is decoupled.”

    Electric cars don’t need service centers? Says who?

    Regarding thousands of stores – Of course not. But you need more than 50. Lexus, for example, has about 400, last I knew. Those points accounted for about half of Toyota’s U.S. profits. Scion has about 1000 outlets to sell 40K low profit margin vehicles.

    For perspective, MINI has about 115 (stores), Volvo has about 300, Lincoln wants about 325, Infiniti has about 200

    Toyota thinks SCION should have about 350 – 500.

    • 0 avatar
      charly

      Anybody who looks at electric cars sees that they don’t need the semi difficult service centers that ICE cars need. There is no regular oil or change spark plug. So what you are left with is changing tires, what any tire shop can do or the really hard stuff that can’t be done by a local service center.

      To buy a car the service center has be “near” you otherwise it is to much hassle. Electric cars don’t requirer the local service center so the number of dealerships can be much lower. 500 sounds to me to high. My guess is 200 would be enough just like Apple stores

  • avatar

    RE: “Musk is trying to avoid what is referred to in technology marketing as “the VAR problem.” A dealer is more interested in making money than in selling one specific product.”

    Musk is not interested in making money?

    RE: “With its low volumes and unusual offering, the last thing that Tesla needs is to have an independent seller that migrates the customer to a used BMW on the lot or a Mercedes at an affiliated dealership.”

    The market takes care of these things UNLESS you think consumers lose choice once they walk into a Tesla showroom.

    RE: “Tesla needs a staff that will focus strictly on his product, and on no other.”

    And good for him as long as he can afford it.

    RE: “The company is being set up for a flip.”

    Probably a flip of some kind, PROBABLY a selling off of the factory owned distribution network at some point to fund continued product development.

    RE: “Buyers of startups don’t necessarily focus on profits, so much as they do on growth rates and gross margin.”

    Tesla doesn’t have any gross margin without economy of scale.

    RE: “By selling the cars directly at retail, the gross margin is inflated, which increases the company’s value to a potential buyer.”

    You forget about the expense of the direct sales model as if there is no cost to offset the gross margin as a consequence of owning the retail points. This seems to be a common error on this blog.

    RE: “When grooming a startup for sale, it’s wise to leave some opportunities for a value-added play. The chance to build a larger sales network post-sale fits into that category.”

    Tru Dat!

    RE: “Dealers require captive financing.”

    Not really. Its helpful, but Wells Fargo is furnishing some of that role for Tesla, in a similar way to how Santander furnishes services to Chrysler, who has no real captive. At one point GM had no captive.

    RE: “Tesla can’t afford to provide it.”

    At this point they couldn’t begin to finance dealer inventory. We’ll see how long build to order lasts. There’s a lot of available capacity at the NUMMI facility.

    RE: “Three of those four positions are a byproduct of Musk’s technology background. The marketing ideas from tech, and the emphasis on certain financial metrics is driven by how tech companies are valued when they’re being positioned for sale.”

    The market will decide if Tesla is a tech company or a car company.

    • 0 avatar
      Pch101

      “You forget about the expense of the direct sales model as if there is no cost to offset the gross margin as a consequence of owning the retail points.”

      No, I’m not forgetting anything.

      Gross margin = Revenue – Cost of Goods Sold

      Revenue comes from selling the product

      COGS are costs associated with producing the product.

      An automaker with its own stores could justify putting the cost of the retail operations into a different category such as SG&A. Those costs hit net profit, but they don’t touch gross margin.

      Musk has said that he wants to hit 25% gross margin, similar to Porsche, which would make Tesla an industry leader. That’s how he may be able to do that — he books retail revenues, but wholesale costs. The guy took the right accounting course.

  • avatar

    RE: “An automaker with its own stores could justify putting the cost of the retail operations into a different category such as SG&A. Those costs hit net profit, but they don’t touch gross margin.”

    Sure, they could justify placing costs elsewhere especially if their purpose was to over inflate gross margin by pretending distribution costs shouldn’t be applied in the margin calculation. Not sure that gets by FASB, but it certainly doesn’t pass the “smell test.”

  • avatar

    RE: For the manufacturer, sales expenses aren’t part of the product cost.

    So Tesla can pretend owning its own points produces revenue without cost. We’re parsing here.

    • 0 avatar
      Pch101

      “So Tesla can pretend owning its own points produces revenue without cost. We’re parsing here.”

      No, you’re just failing to understand the point.

      Here’s a textbook example to illustrate the issue:

      highered.mcgraw-hill.com/sites/0073379352/student_view0/ebook/chapter1/chend2/review_problem_2__schedule_of_cost_of_goods_manufactured_and_income_statement.html

      Notice how cost of goods sold = cost of goods manufactured, adjusted for changes in inventory

      The sales costs are not included in cost of goods sold. They end up in sales and administrative, which is not included in gross margin.

      It isn’t just parsing, because investors consider high gross margins to be an indication of operating efficiency. This would be appealing to an acquiring company. Musk is masterful at highlighting the performance figures that favor him most, while ignoring the rest.

  • avatar
    EchoChamberJDM

    To PCH101 –
    I doubt most Wall. St. analysts (as well as TSLAs independent auditors) can fully understand how the books are done each quarter. What is commonly accepted for auto manufacturing, retailing and auto financing are far different than software or tech hardware – which is how Tesla is positioning itself internally and externally. Yet Tesla has proven over the past several quarters, it will choose whatever methodology suits them best to hit their numbers for the quarter. I’d like to see how profitable (cough cough) they are once their sales of ZEV credits run out, they are forced to partner with established dealers due to multiple state franchise laws (NY, Texas, etc), and they have to sell to more mainstream buyers who are going to play off Tesla fugly next gen models off of BMW, Nissan, and Lexus. Why the market values Tesla where it is is beyond me, but everyone is partying like its 1999.

    Elon Musk = Pets.com sock puppet + physics degree

    • 0 avatar

      I can tell you that two of the most noted Wall Street auto analysts, Maryann Keller and Cliff Banks aren’t duped by Tesla accounting.

      • 0 avatar
        EchoChamberJDM

        Maryann Keller hasn’t done hard core OEM analysis for decades, she is happy as a clam being a director for auto rental companies. You have one set of analysts saying Tesla is worth $200/share or more, and another group saying its worth $30-50 at best. Fads last 2 years, Tesla is only 6 months into theirs. I give them until 2015 and we will be talking about them like we talk about Groupon now. Good concept, good launch, but not a sustainable business model.

        The more Elon talks the more his ignorance shows. 10k sales in Germany? Please. No way that will happen. Cars in that price range in Germany are typically leased or purchased as corporate cars for mid to Sr. level managers and funded by their company car account, and the only cars on that “approved” list are MB, BMW, and at times Audi.

        • 0 avatar

          RE: “Author: EchoChamberJDM
          Comment:
          Maryann Keller hasn’t done hard core OEM analysis for decades, she is happy as a clam being a director for auto rental companies.”

          Now this is good. And you know this how? I think I might know her a LOT better than you. She doesn’t need the money but she does a hell of a lot more than function as a Director for Drive Time and the Lee Auto Group. She is a Director for exactly ZERO auto rental companies. I can tell you for sure she is the person Alan Mulally calls first when he wants good information. People from GM don’t call her. She’s persona non grata over there since her books in the early 1990s about GM, prescient though they were. Cliff Banks has his own area of connections. Between the two of them they have forgotten more than the others know.

          BTW, Maryann’s husband, Jay Chai, brokered the deal between Toyota and GM for the NUMMI plant Tesla manufactures from. Maryann has had the high profile, but Mr. Chai has been a MAJOR player behind the scenes for decades.

          But I agree with you that Tesla’s CURRENT business model is NOT sustainable, but I give Musk a lot of credit for getting this far, and for his beautiful Model S. Fact is, people don’t buy for practicality, they buy for emotion. And the Model S elicits emotion. AND as a nice aside, it has an advanced EV drive train. But as you point out, the way forward is fraught with potholes.

          RE: “You have one set of analysts saying Tesla is worth $200/share or more, and another group saying its worth $30-50 at best. Fads last 2 years, Tesla is only 6 months into theirs. I give them until 2015 and we will be talking about them like we talk about Groupon now. Good concept, good launch, but not a sustainable business model.”

          I wouldn’t hazard a guess at what the stock value of Tesla might be. Keller and Banks haven’t either. There is way too much uncertainty to make predictions like that. I’d not be a buyer at any price at this point. If I did, it wouldn’t be an amount that would impact me hugely if the deal tanked. I’m hopeful for them, but no predictive. I do know that they will need economy of scale unless they want to stay “niche.” That isn’t Musk’s stated objective. Mass market required a real dealer body. Even Toyota can’t afford that even though they could afford Tesla out of pocket change.

          The more Elon talks the more his ignorance shows. 10k sales in Germany? Please. No way that will happen. Cars in that price range in Germany are typically leased or purchased as corporate cars for mid to Sr. level managers and funded by their company car account, and the only cars on that “approved” list are MB, BMW, and at times Audi.

          • 0 avatar
            EchoChamberJDM

            Ruggles – Sorry, I meant to say “former” director for Dollar Thrifty, whose board said no to Hertz. Sorry, the she did a disservice to the DTAG stockholders there. And Drivetime is nothing more than a JD Buyrider wannabe. Husband brokered the NUMMI Plant? That was 30 years ago.
            The last of the all time great auto analysts, who really knew what it took to deisign, plan, build, wholesale, and retail left the business when John Casesa left Merrill to go to work for private equity. Unfortunately, there is a vacuum out there now, all the quality analysts have picked up their marbles and gone home.

          • 0 avatar

            Their board said no to Herta to get the price up, which they did and DTAG was sold to Hertz with a big cha ching for the DTAG stockholders AND Ms Keller. How could that possibly be a disservice to DTAG stockholders? I suspect you just didn’t complete your research before you posted.

            Even IF DriveTime is a JD Byrider wannabe, so what if they are successful and profitable. Was that meant to be a put down? Actually, the two companies are quite different, but I doubt you’re close enough to know that. I conducted training for Jim DeVoe in Marion Indiana the first time as he was starting up JD. I stay up on DriveTime via Keller and founder Earnest Garcia. Your dismissive comment isn’t even accurate. Earnest flies around the country in his wannabe corporate jet.

            Regardless, I don’t think of myself as an expert on the sub prime business as I’ve avoided for my 40 years in the car business. I don’t like it and don’t want to go near it. But Drivetime is working on a new prime/near prime initiative that interests me, so I watch them more closely than I normally would.

            Yes, the NUMMI deal with Toyota was years ago. So what? There have been many more major deals brokered by the good Mr. Chai as Sr. VP of C Ito, now Itochu. Chai is semi retired as is Maryann, but this one very active semi retired power couple.

            Funny you have mentioned Casesa. I really haven’t vetted him, but we have invited him to speak at a conference in NYC in April. I’ll ask Banks and Keller about him, as well as my sources at various publications. The people plying their trade these days aren’t doing it as employees of other companies, but for themselves. That’s why you haven’t heard of them.

        • 0 avatar

          Maryann Keller still does hard core OEM analysis as always and is a sought after speaker at industry events. Steve Rattner has been know to venture an opinion every now and then. He is also a highly sought after industry speaker. I haven’t asked him his opinion of Tesla yet, but I will. Cliff Banks is as connected as anyone and extremely insightful.

          • 0 avatar
            EchoChamberJDM

            There’s no need to “vet” Casesa, he is the real deal, head and shoulders above the other folks you mention (not to denigrate them, but they are just from a different era). Kelleher is smart, good history and common sense, wrote a few books, but not in touch with the current realities of todays market. Its like asking Lou Holtz what he thinks of the todays Fighting Irish football program. Different time, different era, different players, different competitors. All the folks you mention are calling the plays and commentary from the sideline. They are sideline coaches and color analysts. I’d like to hear from someone whose helmet is on and in the game. Just because you are on a first name basis with them does not automatically place a halo of omniscience around them. Kelleher was the one who predicted (15 years ago) that VW would be a top worldwide competitor, which hasn’t come true.

          • 0 avatar

            Exactly how would you think you know what Keller is doing these days? How would YOU know who the “go to” analysts are. I live in that world. Casesa is certainly mentioned, but he tells us stuff we already know. Mulally isn’t calling him, he’s calling Maryann. Banks has his own niche. You might want to subscribe to his newsletter if you want inside information. He was a major player at WardsAuto until going out on his own. And Rattner? He has access no one else has.

            BTW,do you know the difference between Keller and Kelleher?

          • 0 avatar
            EchoChamberJDM

            Sorry, Keller!
            The world of conferences, 1980s stock analysts, private jets and consulting that you tout is not the car business, and only tangentially related to vehicles and product. Case closed. Remember the title and purpose of this website.

  • avatar

    RE: “Author: charly
    Comment:
    Anybody who looks at electric cars sees that they don’t need the semi difficult service centers that ICE cars need. There is no regular oil or change spark plug. So what you are left with is changing tires, what any tire shop can do or the really hard stuff that can’t be done by a local service center.”

    Today, an ICE requires spark plugs every ten years or 100K miles, about the same time interval as a battery pack. Oil changes? Once a year, and not a profit center since most aren’t done at dealerships. Maybe both you AND Musk are unaware of this.

    RE: “To buy a car the service center has be “near” you otherwise it is to much hassle. Electric cars don’t requires the local service center so the number of dealerships can be much lower. 500 sounds to me to high. My guess is 200 would be enough.”

    Expecting a Model S to not have the usual automotive related issues is just wishful thinking. There isn’t enough drive line maintenance and service required on a conventional vehicle to make a difference. An EV will need brakes, pollen filters, wheel bearing packs, chassis lube, etc. just like other vehicles. What they won’t need is the yearly oil change (small issue), an engine air filter every two years (about $20.)

    Anyone who thinks a start up avoids the other vehicle foibles, like door and window adjustments, trim and upholstery issues, and computer issues is in dreamland. No one yet knows what other EV issues may arise. These things will begin to become common knowledge soon.

    • 0 avatar
      charly

      They don’t need brakes. But it is not the cost that is an issue but the hassle. EV have much less than ICE because they are much simpler and the problems they do have are or doable by the lube shop or so difficult that Tesla has to do it themself.

      Computer issue will be done over the cellular network. Interior issues should be done by Tesla themself for feedback purposes

  • avatar

    RE: “The revelation is that they don’t buy but lease”

    The revelation to YOU is that Tesla guarantees the residual on a loan OR lease. Look it up. This guarantees that Tesla gets them all back if they are losers, and gets few back if they are winners.

    “What are the stipulations (fine print)?

    To qualify for the Resale Value Guarantee, you must finance (on approved credit) a minimum of 60%, up to a maximum of 90%, of the Model S configuration price. To exercise the Resale Value Guarantee, the loan must remain open for a minimum of 36 months after the purchase date, and the account must remain in good standing. Please see the Resale Value Guarantee terms and conditions for further details on the program. There are three versions to choose from based on your country and language: United States, Canadian in English, and Canadian in French.
    From where is Tesla drawing the residual value comparison?

    Tesla uses the average residual values as forecasted by ALG, an independent third party. While Tesla may periodically review the calculation of the Model S residual value for its program, your particular residual value will not change once it is given to you. Your guaranteed residual value will be reflected in your purchase documentation.”

    The guy running the forecast part of ALG is a friend. Last I visited ALG in Santa Barbara they had a Model S in their parking lot for ALG staff to drive. With nothing to go on they assigned a SWAG. Keep in mind, ALG does NOT issue residual value insurance. When I asked another friend, who runs the primary insurer of residuals in N.A. what residual value he would insure, he just laughed and said, “RU kidding?” I should have asked him again when he was here in LV last week. I’ll ask both of them again when I see them in San Diego in two weeks. We’re on the same Board of Directors of a training and conference organization.

  • avatar

    RE: “Author: charly
    Comment:
    True, but they know the state the battery is in so they can offer a better price. At the fact that Tesla’s will still be expensive cars after 6 years so the new owner wants guaranties which Tesla can over.”

    You think Tesla is the only group who can ascertain battery condition? How do YOU know the Model S will be expensive in 6 years?

    • 0 avatar
      charly

      They make them, they have all the data like temperature, use, fast charging, discard-level etc. Nobody else has that data so yes, i do think that they are the only one who can ascertain battery condition.

      Because it is an expensive car now. Everything can happen but the S will very likely still be expensive in 6 years. The only way it couldn’t is if there is something seriously wrong with the S, but Tesla would be gone than so that is not a worry for the Tesla company

      • 0 avatar

        First, there are Federal laws against OEMs hoarding service and repair information that prevents independent repair shops from being able to provide repair options to consumers. If the cars become mainstream, there will be a lot of information out there. Tesla won’t be the only ones who could ascertain battery condition. It wouldn’t be practical and it WOULD be against the law.

        You just don’t know what the Model S will be worth in 6 years OR 3 years. The value guarantee is for 3 years, 36 – 39 months to be precise. You are engaging in wishful thinking for some reason. It may become fact, but I wouldn’t bet my life on it. Its a 50/50 prop.

  • avatar

    RE: “Product Engineering is by far the more difficult and important activity for the success of the product. If it is not designed well, it does not matter how well you build it.”

    Tru Dat! AND it is HIGHLY doubtful a start up can fund both the product development AND a distribution system.

  • avatar

    RE: “You seriously believe that Penske and AutoNation employees are more committed and entretrenuerial than Tesla employees? It’s the mega dealers that are taking share, and they are very, very corporate.”

    The mega dealers are taking share because they are buying more dealerships. They ARE more corporate than non megadealer stores, but they universally employ entrepreneurial types from the local market to run those stores, people who have been owners or partners in their career.

    that’s why they are taking share (hiring well, process orientation, long term orientation, aggressive growth targets rather than just funding the owners lifestyle). I don’t work for dealers or an OEM. Just a long term commenter. Are you an employee of a NADA PR firm or something?

    • 0 avatar

      Another comment about the AutoNations of the world. Those companies were formed to make money retailing vehicles. The auto OEMs were formed to make money designing and manufacturing vehicles to sell through their dealer networks. These are two fundamentally different outlooks on things.

  • avatar

    RE: “Are you an employee of a NADA PR firm or something?”

    No. Why would you ask that question? I certainly don’t take NADA’s position on everything, not the least of which is Tesla’s bid to own its own outlets. I’ve been around long enough to have learned the realities of the business from the front lines.

  • avatar

    RE: “Author: Type57SC
    Comment:
    OEMs did not “feel it necessary” to have independant dealers. Ford didn’t have the capital (or sky high valuation of tesla) and then the OEMs abused their market power enough to warrant legal protection of the dealers’ investments. that was 50-100 years ago though. Independant retail is a fact of life for them now, but doesn’t have to be for Tesla. I think you’re well aware of this, so I’m not sure why the trolling.”

    The OEMs DID feel it necessary to have independent dealers BECAUSE they didn’t have the capital.

    You also need to work on your reading comprehension. Trolling? I have as much right here as you, and have infinitely more facts and experience. AGAIN, for the record: Tesla should have the right to establish its own sales network IMHO. This opinion is at odds with NADA. What would be problematic is for Tesla to try to instigate a “mixed system.” I think they should be free to do that to if they are stupid enough to try.

    The point is that there is now way Tesla can afford to develop a permanent factory owned sales network and fund product development at the same time. For this reason I believe Musk will develop what he can, then sell it out to private dealers for huge multiples to finance ongoing product development. Unless he wants to remain a niche manufacturer he needs economy of scale.

    • 0 avatar

      RE: “And there’s the little thing called franchise law that prohibits OEMs from competing with their established dealers. I’m not sure why you feel the need to post 45 times repeating the same invalid point about OEMs thinking they can’t or don’t want to run dealerships. Repetition does not make it correct.”

      Its correct how ever many times I repeat it. I suspect you’ve never held a franchise agreement with an auto OEM and have no clue what’s in one. Your comments indicate that ignorance. Sometimes certain people need to hear something multiple times before it soaks in.

      But as a practical matter, there is no way the traditional OEMs want to compete with their dealers. They don’t want that burden. They’ve proven they can’t handle it, and they’ve learned their lesson.

      • 0 avatar
        Type57SC

        I’m not sure how you can know infinitely more than me, but congrats if that’s how you feel. I’ve been in this business a long time and I know DSSAs quite well. I have negotiated many for both sides. I’ve even help revise a frame DSSA at an OEM. So I know a little about the topic. Your comments betray an ignorance of how the people in OEMs actually see dealers outside of the few in Sales that live and die by dealers being on board with them, and often mistake the dealers for their customer.

        I think you ought to take a look at Tesla’s valuation and ability to tap funds vs Ford’s back in the day. They are black and white different. At a forward PE of 100, Tesla can and has been tapping public markets at rates far cheaper than any public dealer group could come within a whiff of. You’re comments there betray a lack of finance knowledge and pragmatism. I’ve no doubt that there’s an exit in Elon Musk’s future, but it’s not because someone else has a lower cost of capital.

        I’m glad to hear your position on Tesla owning stores. It would indicate you’re not on NADA’s payroll and are sane. I still would rather not read the same post multiple times in one page, particularly as most give up posting that you’re after the 3rd or 4th. Please just state your opinion once and be done with it, replying with expansions or added color but not just restating the same thing again and again. Commenting shouldn’t be a war of attrition. It lowers the bar here.

        • 0 avatar

          RE: “I have negotiated many for both sides. I’ve even help revise a frame DSSA at an OEM. So I know a little about the topic. Your comments betray an ignorance of how the people in OEMs actually see dealers outside of the few in Sales that live and die by dealers being on board with them, and often mistake the dealers for their customer.”

          I’ve not negotiated a DSSA, as you call them, from the OEM side. But Ive plenty of Dealer Sales and Service Agreements from the dealer side in a number of states with different rules in place in each one.

          As far as the people at OEMs feel about dealers – it changes depending on who is in charge. I know how Mark Reuss and Alan Mullaly feel about dealers. But I also know that some factory guys think dealers are privileged to be allowed to spend $20 million, or so, on their behalf, and that they are doing the dealer a bigger favor than the other way around. The bigger are the dealer profits, the more resentment flows from some at the manufacturer. Remember, these people are NOT entrepreneurs, they are employees whose careers are dependent on how much they get from dealers and how little they give up in return.

          I could provide chapter and verse on various OEM execs and good friends can add detail one the ones I don’t know. Regardless, I’d be happy to see what happens to the first OEM to establish its own direct sales model in competition with its own dealers. It would be a real hoot, and wouldn’t last long.

          In fact, I have told NADA they need to STFU on the Tesla owned stores issue. Tesla is screwed in Texas however.

          If you don’t like reading any multiple posts, do your self a favor and don’t. You can post your way. I do my own.

  • avatar

    RE: “If Tesla wants them back they will get them back. And with EV it is financially smart to get them back.”

    NO. Tesla WON’T get them back if they want them back but WILL if they don’t. That’s how these guaranteed value programs work.

    And no one will know how smart it is until the time comes.

  • avatar

    RE: “Sorry, Keller!

    The world of conferences, 1980s stock analysts, private jets and consulting that you tout is not the car business, and only tangentially related to vehicles and product.”

    1980’s stock analysts? Keller, Rattner, and Banks are still alive and well. Keller isn’t as accessible as she once was. Doesn’t mean she isn’t as knowledgeable as ever or as sought after by top industry execs. Wonder who keynoted the last NYC NADA/JD Power event?

    Rattner and Banks are also still alive and well. 1980’s? It was you who attempted to dismiss DT as a JD Byryder wannabee AFTER getting everything else wrong. You accused Keller of doing wrong by DTAG. You didn’t even know the Hertz deal happened at better numbers for DTAG and she out of there over a year ago. In fact, you thought Keller was still on the DTAG BOD. If you’re what passes for a knowledgeable car guy with credentials to be taken seriously about industry issues, we’re all in trouble.

    Case closed.


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Contributing Writers

  • Jack Baruth, United States
  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Vojta Dobes, Czech Republic
  • Matthias Gasnier, Australia
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Cameron Aubernon, United States
  • J Emerson, United States