What Might Happen To Tesla Motors Inc (NASDAQ:TSLA)’s Direct Sales Model?


Tesla Motors Inc (NASDAQ:TSLA) prefers to sell its luxury electric cars directly to consumers instead of through dealership as all other automakers. The company makes many claims for why it is important for it to sell directly. Among them, the company says that its cars require detailed explanation to consumers and that can only be offered by an insider who knows everything about the vehicles. However, there is an emerging trend that could blunt Tesla’s direct sales claims and what might happen next could impact the company’s bottom-line.

Tesla Motors Inc (NASDAQ:TSLA) has been waging war against organized dealerships in many states. It has had its way in a number of states and continues to fight. Presently it is locking horns with dealerships in Indiana as it seeks a pass to direct sales that would allow it to bypass dealers in selling Model S and Model X to customers in the state.

Benefits to the company

Tesla claims that its direct sales model is not only beneficial to itself but also to the customers. As for the company itself, direct sales provides the opportunity to deepen relationship with customers and sidestep certain distribution costs or hurdles that it would have to confront if it sold its cars through dealers.

Benefits to customers

As for the customer, Tesla Motors Inc (NASDAQ:TSLA) says that customers get the opportunity to understand its cars better because they are unlike what many of them have driven all their lives. Additionally, customers have the opportunity to customize their car model to their taste, something that the company says might be difficult to achieve if it used the dealership distribution channel.

The basis of the narrative

Of course, Tesla’s direct sales campaigns are hinged on the fact that Tesla vehicles are unique products that customers don’t already understand well and dealers also can’t offer the detailed customer support required.

Will traditional automakers expose Tesla?

However, Tesla Motors Inc (NASDAQ:TSLA) may encourage some hurdles to its direct sales strategy in the near-future. Many conventional automakers such as Ford Motor Company (NYSE:F) and Toyota Motor Corp (ADR) (NYSE:TM) are embracing electric propulsion for their future cars. Some of these traditional automakers are already selling hybrid cars and they are doing so through dealerships.

What happens if these conventional automakers are able to show that it is possible for one to serve customers well and make profits even if they sell their electric cars through dealers? Will Tesla Motors Inc (NASDAQ:TSLA) change the tune? It is possible some states might take more hardline position against Tesla’s direct sales model if that happens. But for a company that only looks to new vehicle sales for all its profits, not selling directly could herald a difficult time.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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