Tesla has 2 major problems, and they have nothing to do with its cars
Matthew DeBord
tesla model s supercharger station
(William Wei, Business Insider) A Tesla Supercharger station.
Consumer Reports recently pulled its recommended rating for the Tesla Model S sedan, citing reliability issues that surfaced when owners were surveyed.
That didn't change the fact CR also said the Model S P85D, an all-wheel-drive performance version of the electric four-door, broke its scale, earning 103 out of 100 points.
Owners might have issues with their Teslas, but these cars still tend to impress everyone who gets behind the wheel. At Business Insider, we've driven all the cars that Tesla has produced, from the Roadster to the Model X SUV. They've all been terrific.
Tesla doesn't really have problems with its cars — not major ones, anyway. And in any case, if something does go wrong, Tesla will fix it. Because Tesla is a young company by auto-industry standards, and working with new technologies, it wants to fix its cars, so that it can learn how to build them better.
That doesn't mean Tesla doesn't have problems. In truth, Tesla has two big ones.
1. Tesla has to maintain its own fueling network.
tesla supercharger fast charging system
(Green Car Reports)
Tesla sells the only all-electric vehicles on the market than can deliver range that rivals gas-powered cars. But getting enough charge in the battery of a Model S to deliver 270 miles is no easy matter, especially if an owner is taking a long trip. For that, high-speed charging is imperative, unless you're in the mood to wait 12 hours for that great big Tesla battery to rejuice.
Tesla has always known this, and that's why the company developed its Supercharger network. For all practical purposes, Tesla owners can now drive their cars free from range anxiety in the US, given how extensive the Supercharger network now is.
At the moment, there are nearly 3,000 individual Superchargers worldwide and over 500 Supercharger stations with more to come. One of these things can return an 8o% charge to a Tesla battery in under one hour.
Awesome, to be sure, but think about that for a second. Tesla ownership, while tenable, doesn't really function optimally without the Superchargers. Fast charging is a must, unless you want to drive 250 miles and then park your EV overnight while it slowly recharges at a non-Supercharger charger.
So Tesla isn't just in the electric-car business; it's also in the electric-car-charging business.
It's as if General Motors, in additional to building cars, were operating gas station nationwide. Which it isn't.
According to The Motley Fool, it doesn't cost Tesla very much to operate a Supercharger station. But it does cost Tesla a decent chunk of change to build one. And if the carmaker reaches its goal of delivering 500,000 vehicles annually by 2020, it's going to need to build a lot more Supercharger stations.
This is a problem when you consider that it would be great for Tesla is somebody, anybody else would get into the fast-charging game in an aggressive way. But right now, there simply aren't enough EVs on the road to make it worth the expense.
2. Tesla is trying to reinvent the car dealership.
tesla store
(Phil Denton / Creative Commons)
Tesla doesn't want to make use of the traditional franchise-dealer system that has ruled car sales for a century. Rather, Tesla wants to sell cars directly to consumers. In several US states, the company has been able to convince legislators either to allow it to do this or create exceptions to the existing dealer-franchise laws.
To facilitate these transactions, Tesla wants to establish a network of "stores," where prospective customers can check out vehicles, take test drives, order cars, and get service. Think Apple Store. Tesla owns the retail experience.
But as auto-industry veteran Bob Lutz recently pointed out in a Road & Track column, "Nobody has ever been successful with company stores, though plenty of manufacturers have tried them." Lutz labels this a distribution problem and argues that the immense cost of running a dealer network is one of the reasons why traditional automakers see some benefit in offloading that responsibility to ... dealers!
That's just not good enough for Tesla, and it makes sense. Traditional dealerships can be good businesses for one very key reason: service. Oldfangled cars need relatively routine service, everything from oil changes to more ambitious tune-ups and repairs. Teslas, while not free of maintenance concerns (as Consumer Reports surveyed owners would be quick to note), as far less maintenance intensive than their gas-burning cousins. A Tesla is essentially an electric motor (or two), four tires, four sets of brakes, a chassis, and some electronics. It is a simple machine.
There isn't much for Tesla to gain on the service side. There is plenty for Tesla to gain on the experience side, however. Ensuring that a customer can be properly introduced to Tesla's world makes all the difference. That's why Tesla wants to do direct sales. If a customer checks out a car, he or she is likely to buy one (or at least order one for delivery when Tesla can build it).
So why are these problems for Tesla?
Here's why: They add, in effect, two more businesses to Tesla's plate. It hard enough to build a revolutionary automobile. But Tesla also wants to provide the "fueling" system and the control the retail environment. And while it's true that traditional automakers often support their dealer networks with financing and incentives, what Tesla is trying really is much closer to what Apple does with its stores.
Lutz is unsparing in his assessment of why this is a terrible way for Tesla to operate:
[T]he fixed costs for an Apple store are next to nothing compared with a car dealership's. Smartphones and laptops don't need anything beyond a mall storefront and a staff of kids. A car dealership is very different. It sits on multiple acres. You need a big building with service bays, chargers, and a trained sales force, plus all the necessary finance and accounting people. It ties up a staggering amount of capital, especially when you factor in inventory. Under a traditional franchise arrangement, the factory never has to carry that burden.
These problems haven't caught up with Tesla yet. But it will have to solve both of them if it hopes to thrive in the future.
