It’s been a long strange trip, with several speed bumps, but the battery is about to die. Thanks for the memories, dangerous curves lie straight ahead. Tesla (TSLA), Elon Musk, and his shareholders are about to find out.
The latest ruling in New Jersey that Tesla will not be allowed to sell directly to consumers won’t be the last. For his part Musk is trying to go head to head with the establishment fighting for the status quo. It’s a waste of time. He would be better off working on the hyper loop…or a “Mr. Fusion” from “Back to the Future” fame.
Musk outlined a pathway to a 25% gross margin for Tesla in the coming fiscal year on the recent earnings call. Some have suggested that once sales in China charge up, that figure could grow to 30%. Dream on.
Gross margins of 30% in the auto industry are a fanciful wish that no one in their right mind would expect to last. It’s a fact. Car manufacturers collect 6-9% when selling to their dealer network. The dealer’s action when sold to buyers is even less, about a third of that.
Gross margins on trucks are better than those on small sedans. The Model S is not an F-150. It seems doubtful people want the risk of selling a car worth $70,000 for a potential of earning 2-3% on their capital.
That’s not a lot of margin, only grocers can relate. Current dealers can boost profits by customizing cars at at a vehicle assembly plant or at the dealer level, but the room for error is small which is why they don’t need a genius billionaire messing with their system.
Many if not most dealership groups own several, if not dozens of dealerships, leaving them diversified across the space with lots of cars to sell overall. Remember that.
A recall at General Motors (GM), no problem, people head over to the Ford (F) dealer and pick up the slack. Ownership could not care less. It all goes into one BIG pocket.
These groups are family owned, likely for generations. Their connections are vast and their pockets are deep. It’s a battle that can’t be won by anyone, even Musk.
The only reason Tesla showrooms have survived to this point is because Musk had yet to prove the concept. It’s proven now. Folks who can afford the Model S love it. It’s a threat. You take threats out before they take you out. Such is the Jersey way.
Could Tesla adopt a dealer model? Sure. There’s just one catch. You need INVENTORY to have a dealer. They currently have one model. Imagine your local Ford dealer selling only the Fusion. Not a lot to discuss or haggle over right? Any used models around? Nope. It won’t work.
A safe estimate to open a TSLA dealership with one model is probably in the range of $10 million when considering real estate acquisition, overhead and inventory.
Do you know a lot of people ready to invest $10 million looking for a 1-3% return? Also, there’s no kicker of used lots with profits of $1k-$2k per vehicle or parts and service. Car sales is a volume business, there’s not enough volume to make it worthwhile. Period.
However, if Tesla is a growth technology stock that may redefine the electrical grid in the country, there’s really no price not worth paying. But are you convinced of that?
If indeed Tesla is merely a car manufacturer, buckle-up, it’s about to become a real bumpy ride.