Love him or hate him, it’s hard to deny Elon Musk’s desire to push the envelope. Unfortunately, his hyperkinetic way of living sometimes produces negative results for Tesla (NASDAQ:TSLA) and Tesla stock.
Take the company’s recent announcement that it would shift to an online sales model. The owners of Tesla stock were left scratching their heads. How do you sell cars without traditional showrooms? It’s just wrong. Un-American. Not the way it’s always been done.
Sure, challenges will be created by Musk’s plan to ditch Tesla’s stores, but like everything the innovative company does, there’s a method to Tesla’s madness.
“I think every business has its challenges, but they’ve done a pretty good job overall, I wouldn’t be betting against them,” Carvana (NYSE:CVNA) CEO Ernie Garcia said on Mar. 7 on CNBC. “I think when you buy a new car, questions are different, but the return policy is enormously powerful like it is on the used side. A customer knows they can return it.”
Why Don’t Car Companies Sell Online?
I’ve always wondered why car companies don’t sell their vehicles online.
I know the industry hasn’t taken this step because it thinks that customers need to be coaxed into buying higher-priced cars, something that’s nearly impossible to do online. But consumers today have become far more reliant on the internet to make decisions about buying cars; the visit to the dealership where the car is actually bought has become something of an afterthought.
The last car I bought, a 2015 Jeep Cherokee, was purchased at the dealership where I got my previous vehicle serviced. In all my time owning vehicles, I’d never had an experience quite like the one this particular sales associate provided.
When it came time to get a new vehicle, the Jeep was only one of many possible options. I bought the Cherokee primarily because I wanted to continue to utilize the dealer’s service department.
Now that I’ve moved from Toronto to Halifax and I don’t have that relationship anymore, the odds of me buying another Jeep have gotten a lot slimmer. And that’s not because I don’t like the vehicle; I do.
Every car I’ve ever purchased has involved an uncomfortable sales process. It’s like going to the doctor for your annual examination, without the benefit of protecting your health. In other words, it’s awkward and never fun.
I don’t know why it’s so awful.
It’s All About the Marketing
I think Tesla’s stores were nothing but marketing tools. Five years ago, the stores might have been necessary. Today, everyone and his dog knows about the brand.
Tesla is closing its stores to save money. It can use those savings to lower the actual prices of its vehicles. The company estimates the move will reduce the prices of its vehicles by 6%. That’s a decent chunk of money even when a $35,000 Model 3 is involved.
That’s good news if you own Tesla stock.
Also, Musk has said that TSLA needs to improve its service, which includes doing more work at customers’ homes and offices.
Imagine if TSLA could deliver a top-notch, online sales experience, including lower sticker prices, and follow it up with rock star service. Of course, the industry’s going to have a problem with that, considering how much money dealerships have invested in real estate, buildings, etc.
Tesla Stock Won’t Be the Loser
I think this is a brilliant move by Elon Musk. Busy people don’t have time to dilly-dally in showrooms haggling over what size wheels come with the vehicle. That’s so old school.
Go online to any of the auto manufacturers’ websites. You will see a link entitled “Build and Price” or something to that effect. So, you go through the process, and it tells you to go to a dealer near you.
What’s the point of offering this process if you can’t press the “buy” button?
A lot of questions have arisen about the risks involved in switching to an online sales model. Frankly, I’m not sure why these same experts aren’t talking about the dangers of not making the change.
At the end of the day, if you have stock in a business that owns automotive dealerships , say Penske Automotive (NYSE:PAG) , or you own shares of an automotive real-estate company, Tesla’s latest move ought to make you terribly nervous. Even those who own shares of one of the traditional car manufacturers, such as Ford (NYSE:F). should be worried
If you own Tesla stock, you can relax, since the future of automotive sales is online.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.