Tesla Reports 4th Quarter Production

Investment Analysis Clubs Macro Economic Trends and Risks
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As I said before, Tesla’s no-dealership model is ideal for this phase of the conversion of ICE to BEV. In the U.S. market in particular, we’re nowhere near the point where there are large numbers of competing alternatives available in inventory for near-immediate purchase. That’s eventually going to change.

Yes, it is. Adoption of EV’s is still relatively new, especially in the U.S. - where fewer than 5% of new vehicles are EV’s, and fewer still are BEV’s. We’re still nowhere near the point where customers can choose between ample and available alternative makes and models for BEV purchases out of existing inventory.

IMHO, that’s why Ford is moving to allow customers to order EV’s directly from the manufacturer - and not any other vehicles. Dealers don’t add value when there’s a huge waitlist - you don’t need them to carry inventory or advertise or do anything to sell the product. Their current EV offerings are in that situation right now. However, their ICE trucks are still in the same competitive position they’ve always been, so they want and need to have them in immediate inventory for purchase.

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122

As I said the phase is 14 years old, This is no longer a phase but a disruption which has caused everyone to rethink their models.

No the reason Ford is allowing customers to order EV’s directly from the manufacturer, and not any other vehicles is because Ice is going away and EV’s are the new business model. The old legacy system is being disrupted and Ford is trying out the new business model with the new business line. Yes they will keep the old business line firmly entrenched in the dealership model because, as you know, they can’t escape that because of the laws.

Andy

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123

“Phase,” “disruption,” “time period” - whatever term you want to use, we are still in the period where the number of BEV models is so low that Tesla faces very few situations where customers are presented with the choice of competing vehicles available immediately out of dealer inventory. The fact that it’s been 14 years since the introduction of the Roadster isn’t really all that relevant. Tesla’s business model hasn’t yet faced the economic situation that supports dealers, and indeed retail generally - when competitors’ goods are available for immediate purchase, you gain an economic benefit by having your goods similarly available. There’s a cost you need to incur to get that benefit, and it might not end up being worth it - but the relative value of using a retail chain rather than direct-to-consumer is much greater when competitors’ goods are available in that channel.

Are there dealer laws that differentiate between cars based on their power train?

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124

I would think you would know the answer to this? Why would Tsla not have to have a developed dealership network (Not saying they don’t have dealerships) yet all the other Auto companies do? Why would Ford be trying to evolve from the dealership model more into an online model?

Andy

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The answer differs by state. In Texas for example, Tesla had a really difficult time being able to sell any cars at all specifically due to state law and their lack of independent dealerships. (I do not know what the resolution was, nor do I care).

Regarding why Ford is going this route, they want to build cars they know they can sell, rather than build cars speculatively and then store on dealer lots. Thus, build-to-order. Its fundamentally no different than custom-ordering a car from a dealer like the “old days”, but without the dealer being in the middle.

All this, online ordering, build to order, waiting for delivery, all this is geared towards helping the manufacturer. Its why they are doing it. Supply chain issues are certainly helping move that along!

(We recently tried to buy a CR-V hybrid. Would have had to “reserve” a car that is already in production and slated to be delivered to that particular dealer and wait for it to arrive. A true custom-order would have taken longer. We passed).

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It varies.

Some states don’t have prohibitions on direct sales of automobiles. They prohibit manufacturer-owned dealers competing with independent dealers. Tesla didn’t run into problems with their direct, internet sales in those states - they ran into problems with state regulation when they started operating their in-person showrooms and manufacturer-owned service centers. In many instances, they just kludge it - customers can’t “buy” their cars in the showroom center or take title within the state, they are instead just directed to use online purchase options “on their own” and the sale is consummated out of state, then transferred in. That kludge is also used for states where direct sales are prohibited outright. In others, direct sales are prohibited only for companies that have existing third-party dealers - so Tesla is able to sell directly because there are no third-party dealers, and Ford would be prohibited from doing so.

As a general matter, Ford would be able to sell ICE cars directly almost everywhere that they’re allowed to sell EV’s directly.

I disagree with the premise. I don’t think Ford is trying to change from the dealership model more into an online model. I think they’re selling EV’s online because they have a waiting list many, many months long for the Lightning and no live-inventory competition. The utter absence of competition means that dealers not only add no value for those specific cars, but gives them the opportunity to gain a monopsonistic winndfall at the expense of the manufacturer’s brand image:

Those specific instances of egregious dealer markups almost certainly contributed to Ford’s decision. It makes sense to stop selling EV’s through dealers, because EV’s are scarce. It doesn’t make sense to stop selling any other car through dealers, because non-EV cars are not scarce.

But again, those scarcity conditions for EV’s will be transitory. At some point, Ford will be in a different market environment, where consumers have numerous choices for purchasing an electric pick-up truck. Once that happens, it will again become a competitive advantage (and possibly a competitive necessity) to have inventory available for immediate purchase.

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127

You mean exactly how Tsla is doing it all along. And yet you wrote this.

Seem contradictory.

Andy

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128

Well than you are arguing with the Ceo of Ford.

“Our legacy business has been holding us back,” Farley said on a livestream presentation to media and analysts

and

The auto giant announced it would create two distinct internal teams: Ford Blue and Ford Model e. The maneuver is designed to free up resources so Ford could better attack the opportunity in EVs. Ford Blue — essentially the company’s gas-powered auto business — will be focused on managing profits. That means attention on lowering costs, and plowing those savings into the EV Ford Model e division.

Albaby they are using the ICE vehicles to power their way into EV’s essentially as a cash cow before ICE goes away.

Here were his exact words: We know our competition is NIO and Tesla, and we have to beat them, not match them. That would be all Farley would comment about Ford’s two competitors, but as CnEVPost points out, this is Ford’s CEO second mention of both Tesla and NIO in the past two months

Ford CEO calls out NIO and Tesla as the competition 'it must beat,' denies rumors of splitting ICE and EVs into separate businesses | Electrek.

Well, the companies that I think about that I admire because of their commitment — and frankly, the hard work they did to earn their reputation — are companies like NIO and Tesla. They’ve been at this a long time. They engineer their vehicles differently. I’m most respectful of Tesla’s profitability. They’re now making more than $10,000 a vehicle in their second quarter earnings.

Or the whole model will be upended and people will just go online to order their cars.

Here is a video on why Tesla is so much more profitable . Watch the first part of it.

Andy

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129

Not really.

Direct sale and build-to-order has a lot of advantages for the manufacturer. But it has a huge disadvantage for the consumer - they have to wait a long time for a car.

If the car manufacturer was a monopoly, they could tell consumers to stuff it and do what’s best for the manufacturers. But ICE manufacturers operate in a hugely competitive environment where consumers (typically) have a dozen or more alternative brands to consider. So when manufacturers have to compete with each other for sales, one way they can attract customers is by offering immediate purchase out of existing inventory rather than build-to-order.

For EV’s, manufacturers like Tesla (and now Ford with the Lightning) have the huge market advantage that scarcity and limited competition provide - and so they can today tell consumers to stuff it and wait for their cars. That does not mean that they’ll be able to continue doing so once competition in those segments becomes robust.

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I don’t see how. Nothing in that article - or your subsequent links - dealt with dealerships. Ford wanting to move into EV’s to better compete with NIO and Tesla doesn’t necessarily mean that they’ll adopt their sales model on dealerships.

Again, Ford doesn’t want to match them, but beat them - and if leveraging Ford’s dealer network to be able to offer same-day purchases to steal customers from Tesla and NIO gives Ford a competitive edge in taking marketshare, you can bet they’ll do that. They don’t need to now, because EV’s are supply-constrained and scarce. But eventually the market will mature.

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Not to be a party pooper or anything, but with 130 posts on this topic, I thought there must not be a Tesla board on this new platform. Wrong again.

There is a TSLA board here → Topics tagged tesla-motors

Why are we discussing very detailed Tesla specifics (going on for 130 posts now) on this Macro Economics Category? Please don’t try and help me to inform me that I can turn off tracking for this topic. Got that. I’m just asking why this topic is here and not over there?

I also do get that some of Tesla innovations / big picture topics do have some impact on, or give insight into Macro economics. I’m struggling with this one. Seems a bit more “I say <-> you say” to me.

'38Packard

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132

If you’ve got a choice of a dozen different vehicles in mind, it seems way too expensive to take that approach. But once you’ve narrowed it down to a couple, then it seems reasonable to me.

Back in 2017 I was considering upgrading my 2014 Model S to the latest. What I was after was the ideal ski and road trip vehicle (meaning at least an upgrade to AWD), but I didn’t know if that would be a Model S or a Model X. I knew it wouldn’t be anything but a Tesla, because once you have driven a Tesla it pretty much means that anything else is hopelessly obsolete.

I was headed to Vermont for a vacation trip in the summer. So what I did was find some outfit to rent me a Model X for eight days out of Boston and tried it out. It was expensive, but I figured that at worst it would just confirm my choice of a Model X and so be worthwhile.

Instead, it convinced me that a Model S would be a better vehicle for my needs, and thereby saved me quite a bit of money. Very worthwhile!

My advice to anybody considering a Tesla is that they should rent one for a day and try it out for much longer than a regular test drive. Then, if you want, take a test drive where Tesla sales is involved and can answer your questions.

After all, I’m pretty sure you’ll need the whole day to try out all the games you can play on your Tesla’s console nowadays. And your kids will have to try out all the variations of fart mode.

By the way, I’m still driving my New Year’s Eve end of 2017 Model S, and it still makes any non-Tesla seem hopelessly obsolete. Regular over the air updates for the win! And, to be clear, I never play any of the games or use any of the other many entertainment options beyond listening to the great sound system, so that’s not the differentiator. It’s mostly the instant torque, great navigation system, supercharging, great interior space, and half-baked autonomy features, plus the regular software updates that keep making it better.

-IGU-
(and yeah, I haven’t driven all the cars out there, so maybe something comes close nowadays?)

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133

It’s not just Tesla specifics, it’s more about the EV industry, and touching on the macroeconomic effects of the switchover from ICE to EV.

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134

I think you missed the point completely. First it was said that Ford did not want to build speculative cars and store on lots. It seems albaby you are tying yourself up in knots trying to prove a point. But if you do not have any conviction you just keep sliding all over the place like a cherry pit between two fingers. In fact you have changed your position so many times now I truly do not even understand where you actually stand on the whole process.

Andy

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135

I haven’t changed my position at all. Here it is:

  1. If you are an auto manufacturer selling a vehicle that is scarce, with demand vastly outstripping your ability to supply cars and with no real competitors, then going without dealers is significantly to your advantage. In those circumstances, dealers don’t benefit your customers or you. You don’t need local advertising or sales efforts to boost demand.
    You don’t have to worry about losing sales to competitors. Because you can build-to-order every car without any real likelihood of losing sales, it’s to your advantage to do so and avoid dealers. You avoid the cost of the dealers and don’t lose any appreciable sales.

  2. If you’re not in the above situation, then having dealers becomes beneficial. If you’re in a situation where consumers have lots of alternative models that are available for immediate purchase and you no longer have so much demand that it outstrips your ability to supply cars, you can lose sales if you only offer build-to-order. A lengthy delay in receiving the vehicle is a sizable negative for consumers. Some won’t care, but for some it will be enough to push them to a competitor. Moreover, you now would benefit from local advertising and sales efforts that are unnecessary if demand is outpacing your capacity to build.

In the United States, Tesla has spent its entire existence in scenario #1 above. Ford is there now, too, with its EV offerings. Waitlists with no advertising, and no similar models being offered by competitors at volume. So not having dealers makes sense under those conditions.

As the market matures, Tesla and Ford (and all the others) will move into scenario #2. Now, having dealers is a benefit. That benefit comes with a cost to the manufacturer - having inventory and paying dealers isn’t free. But now the dealer activities actually matter. Available inventory keeps customers from competitors; dealer advertising generates demand. Those things weren’t necessary or useful in scenario #1, but are in scenario #2.

What’s not to understand about that position?

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That is very clear, Thank you, However it is not based in reality. Another car company is following Tesla. Now we have Volvo and Ford selling their cars on line.

** In September, Ford CEO Jim Farley met with dealer representatives and issued an ultimatum: they would have to agree to no-haggle pricing and make significant investments in charging infrastructure, or at the end of 2023, they’ll lose the right to sell any of the company’s electric vehicles. Dealers had until November of last year to decide, and almost two-thirds signed on.

Volvo Car is making similar moves, announcing last year that all of its electric cars will be sold online, with transparent, non-negotiable prices. As has been the case with Ford, the changes have put some dealers on edge.**

https://www.bloomberg.com/news/articles/2023-01-03/elon-musk-s-floating-prices-have-been-helping-tesla-deal-with-inflation

This is how disruption works. All of the legacy business’s try to compete by following your business model but they are hampered by their old business. One by one.

Andy

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137

Again, only their electric cars. Only the cars for which there are no competitors with stock available for immediate purchase. As noted above, in the specific situation where you’ve got waiting lists for your product and no need for inventory or advertising, dealers don’t add any value.

If it was the dealer model itself that was being disrupted generally, and not just specific to these products, then they wouldn’t be limiting their changes to only their electric offerings. They would be requiring “transparent, non-negotiable prices” for all their vehicles. Since they’re only making these changes for these specific products, that suggests that the reason for the changes is specific to those products - not the dealer model generally.

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I rememvber reading that the model 3 was supposed to be the 25,000.car for everyone.

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Not at all. It means that the ice is going away and that all is going to be left is the EV model. That is the way you do it. Rip the rug out from the old model and go long on the new.

Andy

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Right zippy that was first said in 2018 but I don’t believe he said the model 3 but that they would make a 25, 000 dollar car, But then came a pandemic and inflation, things seemed to get in the way. Hopefully they will produce one but it probably won’t be 25,000

Andy

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