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  • 25/04/2023

The current Tesla model has no future!

Tribune from Jean-Louis Baffier Nextlane CRO

Jean-Louis Baffier

Chief Revenue Officer at Nextlane

The Tesla brand has a strong marketing vision and clear positioning. Its CEO, Elon Musk, aims to eliminate fossil fuel vehicles – which is commendable – and replace them with 100% electric, reliable, and innovative cars. The young American automaker – founded in 2003 – is not only innovative from a technological point of view: it has also implemented a completely new distribution method for both sales and after-sales. Indeed, Tesla is one of the few vehicle brands that does not rely on a network of dealerships. The goal is to eliminate intermediaries, and the company only sells through its website, relying on remote software updates. This is a fully digital process, but it has its limits.

The role of humans in the car buying process

Undoubtedly, Tesla has revolutionised an industry where electric cars had little appeal. However, the most common car sales process today is clearly hybrid: the buyer researches online, test drives the vehicle, and then completes the purchase. If we follow Elon Musk’s thinking in his sales strategy, will he soon offer robot salespeople in dealerships? Will he close sales outlets? Today, such a scenario is highly unlikely. Humans are too important. The customer relationship cannot be established without human intervention. More digital? Of course! But for the consumer, buying a car is a very significant expense. It seems unimaginable that a customer would pay €50,000 or more for a car without any physical human interaction.

Nevertheless, it is interesting to see online sales develop in the automotive industry. All brands, for their new vehicle sales, as well as in the used vehicle sector, are moving in this direction.

However, the current economic context is such that the wait for a new vehicle is long. It can even turn into frustration. It is, therefore, essential to personalise the buying process, and this requires customer relationship solutions that allow it. Indeed, the better we know the customer, the better we can meet their needs and expectations. A dealer who is close to his customers will have a lot to offer. Even for an online buying process, humans must be at the heart of the process!

The second challenge: the limits of the after-sales model

Tesla’s global fleet, now consisting of several million vehicles, is slowly aging. Many vehicles are now out of warranty, and customers will need to continue receiving updates. Thus, Tesla relies on subscription revenue to generate profits. However, the success of this model is not proven, and the consumer, as always, will decide.

In addition, we are now seeing a market for used Teslas emerge. Repurchases, renovations, resales, the services provided by a network are numerous.

Moreover, Tesla is also starting to go against other players in the automotive industry. For several years now, we have seen that the rates of declared non-repairable electric vehicle accidents are much higher than the known averages for conventional vehicles. The problem is not necessarily the need for disposal – even if more and more electric vehicles use batteries as an integral part of the chassis, and this is not without consequences – but the fact that the experts commissioned by insurers do not always have the necessary knowledge, most often because the manufacturer’s know-how is fiercely protected. This is not specific to Tesla vehicles but a phenomenon observed in the electric ranges of all manufacturers. All of this comes at a cost, which someone will have to bear. In the long run, insurance rates will be affected. Will consumers benefit from this?

Competition – including that coming from Asia – has geared up its weapons.

Across the globe and in all categories, manufacturers have made incredible progress on their electric vehicles. Chinese manufacturers are making a strong entry into our countries. Yes, we will recognise the undeniable and essential impact of Tesla on this market, which has been disrupted in just a few years. Manufacturers are doing a lot to improve the customer experience. But, in my opinion, Tesla’s biggest challenge will be to adapt to this reality: a 100% digital distribution model does not work in the long term. In Europe, we clearly see that the clientele is not ready: waiting times are too long, competition is fierce, and the economic context is not favorable.

Certainly, no one had predicted such success. The brand has managed to shake up a market that had remained too passive for too long. Recently, it has reconsidered its pricing positioning. But the automobile market cannot do without human interactions supported by a distribution network (dealerships or agents). No other model has a future! It is already Tesla’s turn to react: with the arrival of competitive vehicles that are more affordable and rely on a distribution model that emphasises the human aspect, the difficulties are already there. (Figures provided by Tesla’s balance sheets).