Why Tesla is Succeeding When Others are Struggling with EVs
By Edward A. Sanchez — Dec. 29, 2023
I am fairly actively engaged on LinkedIn, posting and commenting on a semi-regular basis. A post by well-known automotive industry consultant David Spisak called out Tesla as a “cult” along with Apple, Amazon, and Starbucks. The term is applied somewhat loosely here as that of brands with strong, loyal followings. In the comments, someone said Kia, Mercedes-Benz, and Audi made “superior” EVs, yet struggled to gain traction with consumers.
I’m going to leave that claim alone, as “superiority” is an often-subjective appellation. It could be equally argued that Tesla is “superior” in many regards. But I digress. But it circles back to a topic Phil Royle and I touched on in episode 151 of our podcast, in which one of his friends walked into a Lexus dealership and purchased an RZ 450e, with practically no instruction or orientation on living with and operating an EV.
Objective superiority of a product is often beside the point. On-paper, many of the Android phones on the market are “better” than the equivalent iPhone model. Yet iPhone owners are often fiercely loyal to the brand, and more often than not get another rather than switch to an Android. Likewise, Tesla models have often been criticized for inconsistent fit and finish, inferior interior trim materials relative to competitors, and subjectively inferior user interfaces due to the lack of physical buttons (again, emphasis on subjective).
Even Tesla’s service and sales experience is not uniformly excellent. While my personal experience has been overwhelmingly positive, that has not been the case for all owners. The difference being there is direct corporate accountability at Tesla, something that is lacking in the traditional franchise dealership model. Sure, there are indirect consequences manufacturers can enforce on dealers, such as vehicle allocation and access to funding and resources for showroom and facility upgrades, but the corporate offices often have little direct authority to penalize or correct bad practices or employees at dealerships.
Finally, there’s the “soft” indifference by dealerships toward EVs. While the front-line commissioned sales people are incentivized by the quick sale, dealership management takes a longer-term view of the business, which relies on post-sale service and maintenance. It’s well-documented that EVs require much less maintenance that internal-combustion models. Dealership management sees this as a long-term threat to their traditional business model. Consequently, management will encourage sales staff to promote internal-combustion models over EV models in the hopes of a longer-term, and more lucrative service relationship.
There may indeed be EVs made by legacy OEMs that are “superior” to Tesla (although that argument is often subjective), but if dealers are passively – or actively – hostile or indifferent to EVs, that superiority will be lost on the customer if the sales, ownership, or service experience is inferior.
Over the next 10 years, I expect there will be another wave of consolidation and buyout offers of dealerships, much like there was in the 2008-’09 financial crisis. Already, reportedly more than 50 percent of Buick dealers have accepted a buyout from GM rather than make the required investments for the brand’s all-EV future. Franchise dealerships can resist the industry’s transition to electrification, but the longer they resist, the more painful the transition will become when the majority of models are EVs, and the more likely they will ultimately sell or accept buyout offers. What the business model will look like for franchise dealerships in the age of EVs is anyone’s guess, but the smart and forward-looking ones will start doing their homework now, and begin to gradually pivot to a sustainable business model not as reliant on long-tail service and maintenance revenue.
The era of wishful thinking that Tesla will simply “go away” or go under due to financial pressure is long over. The company made its way through “production hell” to become one of the most profitable and lean automakers in the world, and is rapidly expanding globally. Legacy OEMs and dealerships ignore the brand and the transition to EVs at their own peril.
(Image courtesy Tesla)
