Tesla's Cash Conversion Cycle

Paul,

Totally agree Tesla deserves a higher market cap than GM. But not this high.

The more interesting play is to revisit this in late 2023 or early 2024 and see whether to go long. It might be an excellent idea at that time.

There are no Tesla service centers in Montana (or Wyoming or the Dakotas for that matter). So only mobile service available. Read about it here: Mobile Service Support | Tesla

Exactly the opposite, of course. Not building a service center or having personnel there sitting around makes for an incredibly efficient experience. It’s hugely flexible as well.

The real problem is just those service visits which can’t be done by a mobile service person. However since this is a small percentage of the total visits, Tesla can afford to spend time and money on them and still come out ahead.

And yes, customers love it. It’s much, much better than having to take the car in.

Nah, it’s a money maker, and partly that’s because Tesla can charge the appropriate price rather than a generic price. They know how you’re driving, unlike traditional insurers.

Every state they operate in (other than California) allows this. Described at (Insurance | Tesla) and (Tesla Insurance Using Real-Time Driving Behavior | Tesla). And I believe that the current states have >50% of all Tesla drivers in the US.

Also, of course, they don’t have any sales force. Mostly, things are done through the Tesla app.

-IGU-

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I’ve got to question that. If mobile repair and maintenance services are so much more efficient than having a facility, why hasn’t that model been widely adopted in the auto services field?

Looking around, the vast majority of auto services are done from fixed locations - dealers, independent shops, specialty shops. Mobile services are certainly available, but they generally charge a premium over the fixed location shops. If the costs to provide mobile services are so much less than at fixed locations, the industry would migrate toward that model. But they haven’t.

I’m not going to buy any “they’ve always done it that way” argument. If there is any business that is going to be close to the free market ideal, it’s auto repair. There are a great many small, independent shops. Barriers to entry are low. Competition is fierce. Poor business models will get weeded out in short order. Any small advantage is helpful, and that would include mobile service.

So what is the secret sauce that Tesla has that makes mobile service cost so much less?

Traditional insurers have long been offering discounts to drivers who will install a small dongle onto the car’s OBDII port so the insurance company can monitor driving habits. So this is nothing new.

I see no particular advantage to Tesla here.

–Peter

I think its purely one of scale. Honda, Chevy, etc. sell lots of cars. And they service lots of new and lots of used cars. Tesla is not there yet. So if they had a service center built, it might not get enough utilization to make it cost effective.

There is no way Honda, Chevy, etc. could go to a full-mobile service center cost effectively. At some point Tesla won’t be able to as well. It only works now because they are not big.

I think this is clearly a negative for the Tesla owner’s experience. But given the rapid growth Tesla is having it is understandable. Every part Tesla makes is best used to make a new car from a current profit point of view. They have virtually no inventory so this makes sense. They should transition to making more spare parts now that they re bigger.
The legacy automakers (COVID supply chain an exception) have 60-75 days of inventory, typically.
So making a spare part or two extra doesn’t really impact current sales at all.

Mike

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It is also important to look at the motivation. Legacy car makers want to drive customers to a dealer for every little service item. They will look at new cars while waiting to get their car serviced sometimes. Or just look while waiting for a shuttle. Or look when they return because the car isn’t ready yet.
Tesla has an backorder wait list for months.
When this changes in a year or two…or five … you can bet that they’ll send owners offers to get $5 off a $10 overpriced wiper replacement just like Toyota does now.

Mike

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AAA has done tire and battery replacements via their tow trucks for decades and decades.

I think Tesla has evolved this way because, at first, when you have only sold a few dozen or hundreds of cars in a city, and they rarely need any work, it makes no sense to have a fully staffed service center. It would be like the old Maytag repair guy sitting there waiting for work. But they have to have some kind of service everywhere.

Mike

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I don’t know about tires - I thought they just put your spare on. I’ve used their battery service a couple of times. It is more expensive than shopping to get a replacement battery, but still cheaper than the cheapest tow plus a new battery.

And those are extremely limited service sets. Only a few tools needed, and they only do batteries that they carry in stock (which is quite a few, but certainly not all).

Of course not. But if they had used a dealer network, they could have sold through any existing auto dealers who already have fully staffed service centers. Very little additional cost to the dealer.

But that’s not the claim. IGU claimed that mobile service was less expensive than a service center. Full stop. In the short run or in certain locations, perhaps it’s a bit cheaper. But there are plenty of areas around the country where a fully staffed service center (or two or three) would make sense today.

–Peter

The answer probably is state law. The dealers have powerful lobbying interests in the state legislature.

Its been stated that EVs are likely headed for a price war. In that battle it looks like traditional auto companies see dealer commissions as likely to be phased out. Tesla does have locations where you can test drive a Tesla. They may well function as dealers. But minimal inventory. And probably only a fraction of the number of traditional dealers found in major cities.

Internal combustion engine vehicles may be mature, even in decline. Companies often spin off such operations when they spot alternative high growth businesses. Yes, ICE drivers will still want service. ICE dealers are likely to become major sellers of used cars. But you expect their numbers to dwindle.

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They do tires. At least in my area. And they do emergency tires for cars that do not have spares. Including Teslas. I got a flat, clicked on the Tesla app for roadside assistance. It was just after 6pm so the Tesla guy texted me back in about 2 minutes explaining that I could wait until the next day for Tesla to fix it or AAA would bring a loaner tire. Loaner tire showed up via AAA in about 30 minutes. I didn’t even have to tell them what car I had.

Sounds like a good idea…now. Back when they started I doubt any dealer would have given them the time of day. And Tesla would still have needed to train them, etc. And since they would be doing Tesla service “part time” they would have needed to train many more than a dedicated staff.

Maybe you misunderstood or he didn’t explain it fully. Tesla does have fully staffed service centers. There are 2 within a 10 min drive from my house. One is on a major street near other car dealers. The other is in an industrial-type location (probably cheaper) since they are just there to work on cars and not sell them. Clearly some repairs need a service center, but they do default to getting you to do mobile service even with multiple nearby services centers so it must be more cost effective for many repairs. See here for a list of service centers:

https://www.tesla.com/findus/list/services/United%20States

They augment these with mobile service depending on what you need to have done. In some regions they have mostly mobile service, I think. But they have to have some place where they can put your car on a lift, for example. According to google they have 673 stores and service centers and 1372 mobile service vehicles (some are Tesla cars, some are vans loaded with lots of tools/parts). This must be world-wide. On the list there are about 170 service centers in the US, ~40 in CA. By comparison, Toyota has 1270 dealers in the US.

They clearly need to ramp up their service. But then there aren’t that many old Teslas.

Mike

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I’m looking far beyond dealers. I suspect that auto makers require their dealers to have a service department with some minimum standard for service facilities. And the economics of new car dealerships is that the dealers make the bulk of their profits on service, not on sales. So they want to have some good repair facilities.

Look instead at independent repair shops. How many of those are from a fixed location versus mobile service? If mobile service were cheaper or more profitable, plenty of people would be doing business that way. And if it were so, dealers would have just the minimal required service facilities and a fleet of mobile service vehicles. Yes, a few mobile services exist, particularly in more populated areas. But the vast majority is done from a fixed location.

I don’t see how lobbying plays any role here.

–Peter

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The difference, most likely, between Tesla and a host of potential other mobile service providers, is that Tesla has zero marketing costs associated with gaining a new mobile service customer. It is literally a couple of taps on the phone app that owners use everyday. And you know they are certified to do the work. And you know they have a shop, if needed. And the service people know exactly what car you have so they bring the right parts (usually). And they have access (customer option) to send videos or other logs from the car, in advance that help diagnose the problem. They do this before the appointment is scheduled so they know what might be the cause and what parts to bring. Who else can do this?

I don’t think you can compare this to Peter’s Honda and Toyota repair shop with one location.
And auto service chain stores tend to service all cars (like tires, mufflers or oil changes) so they need a location with lots of inventory, generally. Even Jiffy lube has to carry dozens of oil filters to fit any car. They rely on fast service where you come to the shop, not service scheduled days in advance.

Safelite Autoglass has shops but also will do windshield replacement on site.

Tesla says:
Schedule a service visit in your Tesla app and your service need will be reviewed. If the type of concern you reported can be addressed by mobile service, the Tesla app will direct you to pick a date and time and the address of where you want service to be performed. Otherwise, if a Service Center visit is more appropriate, you will be prompted to pick a date and time and select the service center where you want service to be provided.

So it seems they prefer customers to use mobile service. Maybe because they think it is a better customer experience? Maybe it saves money? One way it saves money is that they can have fewer service centers not as close together. It also saves on, typically high real estate costs – car dealer service centers have to have a few dozen parking spaces available every day since people tend to drop off cars in the morning and pick up hours later or even at the end of the day

Mike

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I very rarely see any advertising for independent auto repair shops. I really doubt that is the difference.

Nope. Well, they inventory routine service parts - filters and such. But they don’t keep much else in inventory. Everything is ordered from a supplier who can get parts to them on as as needed basis.

Again, a very limited service, just like the AAA batteries and tires. Windshields in particular are amenable to mobile service. Body shops almost universally contract out windshields. So glass companies already have trucks outfitted to carry windshields and make regular rounds to their body shop customers. Adding in some direct to consumer work helps fill in the time and use the equipment already on hand.

I don’t deny that customers like it better. And it can be very convenient to get your car worked on while you are at work or right in your driveway. The office I had for over 10 years had a good local auto shop just a block away. I used them all the time - drop my car off in the morning, talk to the guys and gals, they’d call me with a diagnosis for approval, and then call me at the end of the day when it’s done. That is really convenient. And they loved it as I was never sitting around waiting. Didn’t matter if they took all day, because I was at work all day. After a while, they even mentioned that they appreciated a customer who wasn’t rushing them. They’d often tack on some small thing at no labor charge.

Back to mobile service, I simply can’t see how any real estate costs savings can offset the loss of productivity. In a shop, the technician can diagnose one problem, leave that car while the office transmits that cost to the customer and then orders necessary parts if approved, switch over to a different car to make progress there, switch back to a walk in with some small issue, and so on all day. They can easily have 3 or 4 cars in progress. Almost all of their time can be spent working. In a mobile service truck, there’s a lot of time lost just to travel. And then there’s no ability to switch jobs if there is some kind of delay in the current job. They either have to wait on site through the delay, or drive to a different job then drive back to the current one.

And you still can’t get rid of the real estate completely. Those mobile service trucks have to be kept somewhere. They need a place to collect parts for the day’s run and to be left overnight.

That is why mobile mechanics are pretty rare. They just don’t make economic sense unless the customer is willing to pay a significant premium for the higher level of service.

–Peter

Google ads…when you search for it. For some their biggest ads are their expensive real estate locations. (I do get direct mail from my local Toyota dealer regularly in addition to emails. )

I’ m sure this diagnosis delay happens. But it is probably skewed more to older cars and gas cars. The drive trains in EV are drastically simpler and often self diagnose issues. Whether a Tesla owner brings a car to a service center or has mobile service they ask you to allow sending logs- in advance for things like that. It would be interesting to get stats on Tesla vs others, but unlikely to happen.

Did I say that? I said it would reduce the density of required service centers. But there are places with none, such as Montana, AFAIK. They actually have a Tesla Ranger…a mobile service guy that travels around on a schedule and you can make a reservation for various non-critical things like installing upgrades, installing chargers, etc.

I think you should write this up and send a summary to Elon. He must have never thought of this and is losing money everyday on this. :slight_smile:

Mike

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When Tesla announced plans to deliver cars direct without dealers, they encountered state laws that stopped them. I don’t know how that was resolved.

Yes, auto dealerships are protected by state laws.

In Missouri we have a program on TV each Sunday, “This Week in Missouri Politics.” The auto dealers association is one of the sponsors. They run ads pointing out how many people they employ and how important they are to the state economy.

The auto dealer’s lobby is probably more influential in state legislatures than either Tesla or the auto industry. And in fact the dealer’s lobby could the vehicle the auto industry uses to address the state legislature on laws that affect the industry.

All politics is local. Dealers are much closer than the manufacturers in Detroit.

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It hasn’t been. In many states, Tesla can’t sell you a car without going through various strange rituals. This is even true in Texas, despite Tesla building a huge factory outside Austin.

In New Mexico, Tesla’s workaround is that they will soon be opening their second facility on tribal land.

-IGU-

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