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Tesla's business model that is KILLING rivals isn't what you think..

Tesla has completely revitalized the auto industry. One of the ways is through the introduction of a DTC model that ICE competitors refuse to use. This alongside Tesla's vertical integration will ...

January 19, 2022

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If you think Tesla is going out of business, I’ve got news for you. Tesla IS the one putting people out of business.

In this article I will go over the ancient business model that is the “Car Dealership” which benefits nobody, not consumers nor the car manufacturer but only benefits the car dealers themselves. Tesla has single handedly eliminated this model through their own Direct-To-Consumer program which is only a smaller part of Tesla’s vertical supply chain integration. An integration which is foreign to traditional ICE manufacturers, and is one of the main reasons Tesla has Gross Margins of over 30%.

It is also one of the reasons Tesla is putting other manufacturers out of business and on the edge of bankruptcy. As Christiaan Hetzner from Fortune Reports said

“Try as they might, some of Tesla’s closest rivals are falling further and further behind.”

Let me show you exactly how Tesla is revitilizing the industry….

Direct-To-Consumer

let’s talk about the Direct-to-Consumer Mode Tesla is using, and why it is so effective.

Car dealerships are notorious for being unhelpful and expensive places. Tesla has never wanted anything to do with this outdated system whilst legacy car manufacturers remain stuck with these out-dated models. Only Yesterday Ford told dealers not to mess with their Ford-lightning pickup truck pricing. Per Jonathon Ramsey of Autoblog:

"(Ford) sends letter threatening to cut allocations over reservation upcharging" The dealers are literally making the vehicle "$1,500 to $10,000" more expensive! And that is on average! Some dealerships have even been heard asking reservation holders to pay more than $30,000 extra for their orders!

You wont see Tesla sending threatening letters to anyone about markups because they handle all of the vehicle deliverys themselves!

Dealerships add an extra layer of cost and complexity to the car buying process. Dealerships get most of their profit from servicing vehicles, however the thing with Electric Vehicles is they don’t need NEARLY as much servicing as ICE vehicles because there are simply less parts in the car. And even if there is an issue like a Heat pump. Tesla (like they did two days ago) can send an over-the-air update and BOOM the Heat Pump issue is fixed within a few days. Dealerships simply aren’t needed anymore, especially not now that they’re jacking up prices to take advantage of the current global supply chain.

Tesla does however have show rooms, these however don’t pose any conflicts of interest like dealerships because in the Tesla showrooms there are only Tesla employees and service staff, no one works off comission there.

Tesla’s direct to consumer model, by owning the sales channel, gives Tesla an advantage in its deliveries, product development and vertical integration. Tesla is in control of so much of its own supply chain that they’re able to rapdily introduce changes and to be able to improve efficiency at unphathomable speeds.

The direct-to-consumer (DTC) model is however, only a small pixel in the greater picture that is Tesla’s vertical supply chain integration. So let’s zoom out a bit.

Tesla: Owning your supply chain (The Bigger Picture)

2021 has been a global nightmare for supply chains, with a global chip shortage, a ship getting stuck in the suez canal and an ongoing pandemic. Yet Tesla managed to nearly DOUBLE vehicle deliveries. You can see Tesla is one of the few companies growing their electric vehicle deliveries, and their market share. But how?

Tesla has been aggresively trying to integrate their supply chain, from building their own batteries to installing their own charging stations to delivering the vehicle right to your door…

Tesla is THE MOST integrated manufacturer.

Tesla’s so called ‘competition’ has been investing in design and final assembly for the past 30 years without major innovation. Jack Ewing from the New York Times said it accurately when he said:

“In recent decades, the conventional auto wisdom had it that manufacturers should concentrate on design and final assembly and farm out the rest to suppliers. That strategy helped reduce how much money big players tied up in factories, but left them vulnerable to supply chain turmoil,”

Tesla however is doing things differently, they’re controlling every aspect of the car, ranging from making their own batteries to providing their own software and AI. Phil Amsrud a senior analyst specializing in semiconductors said it best when he said

“Tesla has fewer boxes, and the fewer the components you need right now, the better.” (Tesla has) a more streamlined approach,” Which is clearly benefitting them.

Tesla has secured its future as the number 1 Electric-Vehicle (and thus by default car manufacturer) because they’re carefully integrating everything that goes into the car. Tesla is in control of its destiny because it is the one who designs the technology in the car, Tesla writes the code, Tesla produces their own batteries unlike their copmetitors. This is why Tesla will be able to scale their production whilst competitors will continue to struggle to produce Electric Vehicles in meaningfull amounts for the foreseeable future.

As for how and when Wall Street will wake up to this information, who knows! I’ll be keeping you up to date with my 2 free newsletters every week, stay on the lookout for my next newsletter coming in a few days, so please support my work!

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