A Manufacturer Totally Switches to eCommerce for All Sales?

All Tesla Sales Now Online eCommerce

Tesla switches to eCommerce for all sales

Tesla’s company blog explained, “You can now buy the Tesla in North America via your phone in about one minute, and that capability will soon be extended worldwide. We are also making it easier to try out and return a Tesla, so that a test drive prior to purchase isn’t needed. You can now return a car within 7 days or 1,000 miles for a full refund.”In announcing the shift to online-only. CEO Elon Musk said “It’s 2019, people just want to buy things online,” and pointed out that already 78% of all Model 3 orders were placed online and 82 percent of customers bought such models without ever taking a test drive. Cost savings from this change, alongside other manufacturing efficiencies and a 7% staff layoff, will enable Tesla to lower all vehicle prices by about 6% on average. In particular Tesla will deliver on their promise to offer a Model 3 version for $35,000. Tesla stores will turn into showrooms and galleries, where customers can see and learn about Tesla vehicles, and into service centers (they will hire more service technicians to shortening servicing wait times). Tesla will also announce a new small SUV later this month, the Model Y, that uses some of the same parts as the Model 3.

Was this just adapting to the market or was there more to the decision?

We don't know but can speculate a little:

  • Diminished Electric Vehicle (EV) Tax Credit? The entry level Model 3 priced at $35,000 is $8,000 less than the current basic model but the federal tax credit on Tesla cars has been scaled back, so none of the cars will be available for a total of less than $30,000.
  • Competition? Certainly Tesla is affected by growing competition from Chinese electric carmakers, Volkswagen's Audi and Porsche brands, and Jaguar Land Rover. However, the lower price points (from cost cutting) and wider geographic coverage will, according to Ben Kalo of Baird, expand the Model 3 market by about 600,000 cars in the US alone.
  • Avoiding the Dealer Channel? In certain U.S. states Tesla has long fought franchise laws limiting car sales to dealerships. According to Morgan Stanley, the Tesla move “is a major event in U.S. auto retailing” because traditional automakers still need to go through physical dealerships. Analyst Adam Jonas said, “From our discussions with [traditional automakers] over many years, most auto companies would love to sell vehicles the way Tesla does. There’s just one catch. They can’t. It’s against the law.” Across the U.S., state laws require carmakers to sell new vehicles through dealers. “Tesla is the only [OEM] to our knowledge that is allowed to sell its wares through company owned stores,” Jonas said. “Tesla is now trying to take this a major step further to be the only [automaker] to sell new cars directly to consumers on-line without the involvement of a physical dealer.” Because Tesla does not technically have any dealer franchises, and already sells without dealerships, Tesla’s move online will likely also be protected. If this change works, and Tesla sees the cost savings the company expects, Tesla may be a catalyst for automakers to re-evaluate existing regulations. 

Conclusions

1. This is B2C but we already know that what happens in B2C tends to follow in B2B. Certainly it is a sign of eCommerce maturity that industrial suppliers should note. It's very interesting that Tesla think eCommerce is now so dominant for them that they can dispense with stores and test drives!

2. However we’re not sure that this move, as Musk claims, “will be a fundamental, long-term competitive advantage for Tesla.” Broadly our recommendation for industrial suppliers is to maintain existing sales channels and add eCommerce as an additional sales channel - at least till eCommerce is an exceptionally high percentage of sales.

3. A year ago in our post Which 3 big industrial supplier problems eCommerce solves, we discussed eCommerce 1) driving incremental revenue gains, 2) reducing the cost of serving customers and 3) increasing customer loyalty. Clearly Tesla's move at least validates eCommerce increasing revenue and reducing cost! We'll watch with interest to see how it affects #3. 

As always, if you have comments or suggestions please make them below, click to ask us a question or call for a discussion. In the meantime we'll continue to keep you up-to-date on new eCommerce developments relevant to industrial suppliers.

Update 3/13/2019:

Tesla has since revised their decision - see this NYT article. This latest change actually validates our advice above to do sales both traditionally AND via eCommerce.

For the record, all Teslas will still have to be ordered online (to overcome the dealer franchise issues) but the company will now retain many of the stores it had planned to close and test drives will remain available. Tesla now expects to close about half its stores and will raise most of its vehicle prices about 3% worldwide, after recently cutting prices by 6%. The new price increases, it said, are necessary to make up for the loss of savings that was anticipated from the store closings. Sounds like closing about half the stores ends up with about half the price cut

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