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Tesla Motors' biggest strength could become its biggest weakness

Tesla’s biggest advantage over competitors is its direct sales and service model. As a luxury automaker serving only elite customers this is a huge plus for Tesla, but might hurt the brand badly when it builds its Gen III mass-market car.

Tesla’s smartest move has been to try to deal directly with its customers. By cutting out the dealers it saves the dealer’s profit for itself and its customers and can control the transaction with no middle man. However, those financial benefits are not the main reasons Elon Musk decided to offer direct sales and service. He did it because people hate car dealerships.

Ask people you know to tell you a horror story about buying a car, or having their car serviced. Everyone has their own list of stories about how they felt cheated or tricked by a car dealer. How about the $275.00 “Dealer Documentation Fee” revealed at the end of the transaction after a price was agreed upon? How about going to pick up the car after the dealer said it was ready only to find the car sitting unfinished with parts of it on the hood? These are just two of my real stories from the past few years. Tesla had the first chance at a fresh start in the car business and was smart enough to know it could correct one of the worst parts of car ownership. I say “good for Tesla.” And I mean it.

However, there is one little problem. So far, Tesla has sold cars almost exclusively to very, very wealthy men. The majority of the cars it has sold are second cars, specialty cars if you will. They are prized possessions and they are awesome. They are not are daily drivers. Not the car you take when you have to go to work in the morning, it’s icy and the sanding trucks have been out all night. Not the car you take to the town dump. Not the car you take to pick up your kid who is at school and has thrown up twice in the past hour. Nope. You take “the other car.” Whatever that might be. I have owned a second car for many years and I am not mocking the people that buy fancy cars like Teslas. I have tried hard my whole life to be one of them.

The problem is, Elon Musk didn’t start Tesla Motors so George Clooney could have a toy. In his own words “I suspected that this could be misinterpreted as Tesla believing that there was a shortage of sports cars for rich people, so I described the three step “master plan” for getting to compelling and affordable electric vehicles in my first blog piece about our company.” In this recent message, and in others, Tesla has continuously pointed out that its real mission is “bringing compelling mass-market electric cars to market.” In recent interviews Musk clarified that as meaning he thinks Tesla will be selling about 500,000 cars with the main seller being the Gen III, which will SELL at about $35,000. In other words, Tesla plans to be bigger than Volkswagen is in the USA, plans to sell huge numbers of cars costing about $10,000 more than most people spend on a new car, and it plans to begin doing that in earnest in a just few years.

So far, here in New England Tesla has one store where buyers can learn about Tesla’s single model for sale, test-drive it, and then order one. When I visited earlier this year Tesla even had some vehicles for sale that could be purchased on the spot - as long as they brought about $105,000 (not including sales tax). One store for 5 of the richest states on the planet Earth. Tesla also has one service center in all of New England. It is located in Watertown Mass. That is a very convenient place, but only if you actually live in Watertown. It is basically gridlock getting into and out of Watertown from 6 to 9 am and from 3 to 7pm every workday. So, even though I am only about 20 miles from Watertown, I would never, ever go there on a workday, for any reason. Period. As Yogi Berra is credited with saying “Nobody goes there anymore, it’s way too crowded.” New Hampshire, Vermont, Maine, Rhode Island and Connecticut have no Tesla service centers. In fairness, the New York Tesla service center could reach up to the super-rich in the Fairfield County, Connecticut suburbs of NYC.

Given this reality, how can Tesla plan to service the 500,000 cars it plans to sell annually starting in a few years? Many Tesla fans, who have had a little too much Kool-aid, will say “Tesla’s don’t need service. Remember, they are electric.” To which one might replay “Remember, Tesla sells maintenance agreements.” Tesla has also had a recall requiring cars be brought in for service. It has also modified the suspension of every single one of its Model S cars remotely as a result of recent hysteria over fires. A Model S also stranded an Autoweek journalist at home when his Model S would not decouple from the mothership’s nipple (charger). When I drove a Models S the voice controls for the navigation system did not work, and the Tesla employee in the car with me could not make it work. We were at the Tesla Store. The rear-view camera also did not work (design defect). So, let’s not pretend that Tesla’s mass-market cars won’t have mass-market service needs. Tires need rotating. Cars that hit huge pot-holes and then need a wheel bearing will have to be left overnight. Navigation systems might need replacement. People from Maine are not driving to Watertown, MA to have this stuff done. I once lived in Watertown, and even I won’t go there.

There is no amount of money in Elon Musk’s Paypal account big enough to solve this problem. There is no amount of investor money big enough to solve this dilemma. The fact is Tesla is setting itself up for a very nasty situation. If people start buying Teslas and plan to drive them to work in winter every day, to pick up the kid with projectile vomiting, and take their stuff to the transfer station (dump) they are going to break those Teslas. Let’s not pretend the company is going to be profitable enough to send a Tesla Ranger to each of those half-million people. After 6 years it would be 3 million, and on and on.

Presently, Tesla Motors is fighting dealership groups in court. They want to force Tesla to sell through their old-boy network. They helped finance those politicians' campaigns, and gosh darn it, they expect results. In some states Tesla is winning, or has won the right to sell and service directly. In Mass. Tesla is winning, but has not yet won. In Texas it is losing. Texas is a massive car market. Maybe the situation will solve itself and Tesla will have to use dealerships against its will. If so, that $35,000 car now costs $42,000 after dealer’s mark-up. Now it isn’t even close to mass-market pricing. No car dealer can stay in business without at least a 20% profit (Thank you Wheeler Dealers for that automotive factoid).

Tesla makes an amazing car. It is one of the best cars in the world at its $100,000 price point. Tesla also has the smartest sales and service plan for those vehicles of any automaker in both my opinion and in Elon Musk’s opinion. Sadly, neither of those things will help Tesla achieve its mission.


Charlotte Omoto (not verified)    December 2, 2013 - 10:40PM

I wonder if you had surveyed some Tesla owners prior to writing the article, even informally and unscientifically. I am NOT a rich guy. I am a woman who has previously not paid more than 1/3 the price of my Model S for a car. I bought it as my only car and I have driven it to work in the snow. My rearview camera works fine. I have not had any issues, and when I don't understand a warning on my dash, I can either call or e-mail Tesla. They respond within 48 hours, and the other day when I e-mailed, they called back within hours to explain what the warning was. With that kind of attentive response to owners, I don't have any concerns that should my Model S need service, which I don't expect (remember no oil change and I got my winter tires at my Ford dealer and they can rotate the tires), I can get it easily.

John Goreham    December 3, 2013 - 8:13AM

In reply to by Charlotte Omoto (not verified)

Thanks Charlotte. You are very unique. According to Edmunds, about 84% of Tesla Model S buyers are male. In the general car world, 52% of car buyers are woman according to numerous sources. Only 5% of Tesla owners make under $50K. Also, only 25% of Models Buyers make under $100K. 77% make over $100K. Even more rare, only about 5,000 or so Teslas have been sold in markets that have regular winter snow, unless you count Tahoe.

Stephen Pace (not verified)    December 9, 2013 - 4:37PM

In reply to by John Goreham

@John Goreham: I went to the Tesla owners conference this year (TESLIVE) and met many owners that are women. Some liked the car for the performance, some liked the green factor, and some liked it because you could haul a lot of stuff including 5 children at a time. Even if your 84% statistic is correct (unlikely, Edmunds probably skews heavily male), out of 25k Teslas out there now, at least 4000 owners would be female, hardly making Charlotte 'unique'.

Stephen Pace (not verified)    December 9, 2013 - 4:40PM

In reply to by Patrick Rall

@Patrick Rall: In my 28 years of driving, I have never hit a small solid object at highway speed as these two Model S did. Regardless, even if I did, battery fire is now fully covered under Tesla warranty given the rarity of it. So, no worry at all for me.

Charlotte Omoto (not verified)    December 3, 2013 - 1:03AM

No I don't think that fire would be a weakness. If you had driven at 100mph through a concrete wall and hit a tree with a gasoline car, I would expect not only a fire, but fatalities. That a Model S did this and caught fire, but the occupants were unscathed is a testament to its safety. In two cases where Model S drove over large pieces of metal debris and yet the car warned them to pull over and get out, and they did even retrieving items from the glove box before the fire began is more than I expect other cars would have done. It might even be that if such large metal debris on the roadway had hit a gasoline car, even if it did not hit a fuel line or the gas tank which would have ignited a fire, it might have pierced the under carriage and hurt an occupant of the car.

Patrick Rall    December 3, 2013 - 3:25PM

In reply to by Charlotte Omoto (not verified)

Drove through a concrete wall? Two of the fires occurred after someone ran over debris on the highway...which I have done in a gasoline powered car without any problems shy of a dented exhaust system and some scuffing on the lower front fascia.

Mark (not verified)    December 9, 2013 - 5:43PM

In reply to by Patrick Rall

Patrick, read about the crash in Mexico with the tesla model s. High speed crash, jumped a curb, through concrete wall, then hit a tree. Driver was drunk, and literally ran away from the accident. Once fireman arrived on scene, once the first drop of water hit the car, the flames and fire were out in 10 seconds exactly. Entire car didn't burn up like a gas car. And driver lived. Same for the other 2 incidents you bring up. Many videos and photos online of ice cars with debris that penetrated the floor and came up through a seat. So tesla may actually protect its occupants with the battery. Better to have a fire from battery penetration than the object come through and kill someone.

John Goreham    December 3, 2013 - 8:15AM

Charlotte, if you own a Model S it was recently changed in response to the fires. Can you tell us how Tesla communicated the suspension change to you? Did they call you in advance? After the changes, did the car feel any different? Your input to this page is hugely appreciated. Thanks!

Charlotte Omoto (not verified)    December 3, 2013 - 11:10AM

In reply to by John Goreham

The latest software update occurred like the previous one where there is a message that an update was available and how long it took (I think this time it was like 45 minutes, but not sure). If you weren't going to drive for a while, you can update it right away, but the default was to update at 1 am. After the update, you can go through on the screen all the changes due to the update. The car didn't feel any different.

Charlotte Omoto (not verified)    December 3, 2013 - 11:35AM

Just did. Chose a photo that shows that I use my Model S as any vehicle :-) taking my 2 Labs to the vet but it doesn't show the car well, but I figure any one can find a great photo of Model S in a beautiful setting.

John Goreham    December 3, 2013 - 12:28PM

In reply to by Charlotte Omoto (not verified)

Charlotte, that was so generous of you. Thank you so much! What a beautiful color. As I mentioned on the Face Book page, I plan to be sure to mention in my coming stories about Tesla that the owners come from both genders and are NOT all "Rich guys!" You are the best.

John Russi (not verified)    December 4, 2013 - 4:40AM

Tesla Motors is known for its services and models,but don't know why its strength has become weakness.

John Goreham    December 4, 2013 - 9:30AM

In reply to by John Russi (not verified)

It definitely has not - yet. "Could become" is the premise of the story. In the story I compare and contrast the service models appropriate for a car selling about 20K units per year to wealthy clients (today) vs selling 500K cars to middle-income families (in 3 to 5 years). If the story seems a little skewed against Tesla, please see the more recent TN story about Tesla's win in Ohio in the on-going battle it is fighting to keep selling direct. Thanks for the comment.

Alex (not verified)    December 9, 2013 - 3:01PM

Wow! Did this guy do any research on the topic or he just decided that he doesn't like the car because he can't afford it thus he's just gonna dump on it with no facts whatsoever.

I really don't want to waste my time explaining every single fallacy that is presented here but I'll tell you one that any Tesla Model S owner knows: this is not a "second car". This is the ONLY car that most Model S owners have and we take it anywhere, including picking up our kids from school.

John Goreham    December 9, 2013 - 4:17PM

In reply to by Alex (not verified)

Just curious, how do you know how many cars the "average" Tesla driver owns? Did you get that information from research you can connect me to? Did Tesla reveal that? I LOVE the model S and said so after I test drove it. I also LOVE the direct sales model. How did you come away with the opinion I don't like the car or the company from reading this story? Did you just read the headline? Is this what's bugging you? The part about rich men owning Tesla Model S cars?:
If so, you might like our recent story debunking that myth:

Alex (not verified)    December 9, 2013 - 4:31PM

In reply to by John Goreham

John, I run the biggest Facebook group for Tesla Model S owners and I've participated in numerous Tesla events and electric car events here in the Silicon Valley, California. So, I can tell you that everybody who I've come across owning one considers it their one and only car that they drive. So, that statement is not true at all.

If you've followed Tesla and its amazing ability to scale their operations and manage their customer base - you would know how the premise of your article ( which I've read in its entirety despite the gag reflex ) is silly.

Lastly, showing casing George Clooney as #1 fan of Tesla is ridiculous. Have you seen the statement that he has made about Tesla this year? He's the #1 celebrity enemy of Tesla.

TikiMan (not verified)    December 9, 2013 - 3:39PM

You have absolutely NO clue what you are talking about. Please refrain from writing total hyperbolic nonsense, until you ACTUALLY do some research on the facts in the future.



John Goreham    December 9, 2013 - 4:25PM

In reply to by TikiMan (not verified)

Thanks for your passionate comment Tikiman, What part of the story is not well supported by facts? All those green bold parts are links. Many are to external sources. If there is a particular part you don't think is true let me know. I might have a source I can insert to strengthen the story.

Stephen Pace (not verified)    December 9, 2013 - 4:32PM

In reply to by John Goreham

My Model S is my daily driver and I own no other car. Additionally, I know many Tesla Model S owners in Houston (there are over 400 cars in Houston now) and I know of no owner which uses the Model S as a secondary car. So in Houston at least, your premise that the Model S is just a secondary vehicle seems to be false. If you are looking at families and car ownership, if you look outside of major cities like New York and Chicago, I'm sure you will find that families own at least two cars, but generally because both adults in the family each have a daily driver.

John Goreham    December 9, 2013 - 5:33PM

In reply to by Stephen Pace (not verified)

Thanks Stephen. I will admit, living here in the snow belt may have skewed my thinking about how cars are used throughout the year. If I ever get any better demographic data about the Tesla buying public I will share it. Here's an interesting fact; I live in a very small town in Mass. Literally 1 red-light. That small. We have two Model S cars in town. That makes about 1 Tesla for every 1,000 families. That could be a record.
If I ever see one at the dump I will take a picture and write a story about that. So far, I've only seen them driving through town.

TikiMan (not verified)    December 9, 2013 - 5:15PM

In reply to by John Goreham

With all due respect John. To say that the Model S is not a daily-driver is a HUGE inaccuracy. I have well over 19k miles on my Model S P85 Signature (which IS my daily-driver), and I know many others with well over 20k to 50k miles on their MS’s already. Here in California, I see more MS’s on the road than many luxury vehicles half its price. Also, many owners of the MS are FAR from what I would consider super wealthy (unless you consider folks whom make $150k USD the super-wealthy?) In-fact I don’t think you will find a more humble and diverse crowd of car owners anywhere on the planet.

As one of the VERY first owners of this amazing vehicle, I can only tell you that it’s SO far more superior to EVERY ICE vehicle on the planet, nothing even comes close to it, much less the experience of driving it.

The service from Tesla has been nothing more than amazing to say the least (FAR better than BMW, Benz, Porsche, et al). Never mind, the MS requires less service than every car I have owned in my 32 years of driving ICE vehicles.

There is far more I can ‘enlighten’ you on as an actual owner of a MS if you like.

Mark (not verified)    December 9, 2013 - 4:57PM

Wow! Didn't want to respond at first, but after thousands of articles about tesla being so inaccurate I figured it was time.
Well, another who is not among the very, very very wealthy. ( or was it only 2 very's). Saving 250-$300 per month in gas makes a big difference. This is accounting for our electric bill only going up $70 per month on a average.
My wife uses the S as her daily driver, and it is our primary car. So, far at 11 months, we are average 1000 miles a month driving it. And zero issues. Take it in trips, etc... With no worries. Maybe an article about how the tesla superchargers are changing the world of EV driving??

As for service, they are learning, which no other car company is. Because they are stuck with the dealership model. Why change the dealership model when the dealers make so much money themselves? Of course they are fighting tesla, because they might actually have to provide service to their customers. Dealers would completely screw up the tesla sales and service model. And they know it. Why sell a car that needs little service? #1 sales generator at a dealer? Service.

John Goreham    December 9, 2013 - 5:27PM

I'm glad you wrote in. We agree on almost everything about Tesla. If I ever get better demographic data I will post it, but I did a very popular story debunking the Edmunds study. Here it is:

Just FYI, Torque news has dozens of stories about the Supercharger network. Every one positive.
I completely agree with you that the direct model is the way to go for the Model S. I do think the point that I bring up is valid though for 5000,000 moderately priced cars. I HATE car dealerships, so I am rooting for tesla. My pro-Tesla sales and service model bias probably comes through in this story:

Don't take this the wrong way, but Tesla folks seem to only want to hear the good news about the company. Any perceived criticism is seen by the fans as meaning that the writer has some axe to grind and is dumb as a stump.

Chris (not verified)    December 9, 2013 - 5:29PM

Actually it's my gas cars that have become my secondary cars. I use my Model S as a daily driver and put 11k miles in 4 months. I have an lx570 as my secondary car, it pretty much only gets driven if I know I need to chain up for snow.

Brian (not verified)    December 9, 2013 - 6:40PM

I'll chime in and add my name to the list of those for whom the Model S is the only car and daily driver. I do a 75 mile round trip commute into NYC 6 days a week in all types of weather (i just drove it home in snow and ice last night!) I've put close to 20k miles on the car since last February, and have had no serious issues. Also taken several uneventful road trips down to Washington DC and taken advantage of the Supercharging stations, all with the smaller 60kwh battery. The Model S is a fantastic road trip vehicle as it is quiet, roomy and rides smooth.

I do not consider myself wealthy, my previous car was a 2004 subaru forester. As others have mentioned, the car requires very little maintenance, and the few minor problems I've had Tesla has addressed wonderfully. So glad I took the plunge into a Model S.

Dennis (not verified)    December 9, 2013 - 9:57PM

You obviously don't know anything about Tesla and it's mission and it's pretty much flawless execution. Most of everything written in this article is completely incorrect. I hope your readers are smarter than you are. On and BTW, I don't know of any owners using this as a "secondary car". Of the hundreds of owners I have met now, 100% of them are using it as their primary vehicle. I myself go everywhere with it. Drop off/pick up my kid. 200+ miles daily roundtrip to work. To the dump. To the grocery store. On vacation. In rain. On ice. "if you drive it you will break it" is fantasy thought from an EV/Tesla hater. I have 33000 miles already on mine in 9 months and it hasn't "broke". Idiot. Go find a new job because clearly you are not very good at writing a factual article.