Tesla’s dealership woes are front and center this week. In the latest episode, New Jersey revoked a law that granted Tesla the right to sell cars in the state, citing the lofty principle of “consumer protection.”
This claim elicited a sardonic retort from CEO Elon Musk:
“Unless they are referring to the mafia version of ‘protection,’ this is obviously untrue. As anyone who has been through the conventional auto dealer purchase process knows, consumer protection is pretty much the furthest thing from the typical car dealer’s mind.”
Humor can be a devastating weapon in the hands of a genius, in which case Musk may have already stopped the NADA dinosaur in its tracks.
But that begs the question, “Why would a company with a .02% market share spark backroom maneuvers from an entrenched industry that has virtually zero competition?”
Even if Tesla were to sell half a million vehicles annually, it would only comprise around 3% of nationwide car and truck sales… hardly a disruptive force in terms of numbers!
It’s Not a War of Numbers
But, analysts and potential investors need to remember that Tesla isn’t waging a war of numbers; it is waging a war for the hearts and minds of the Millennials, a 50 million+ generational cohort in the U.S. and abroad that is getting richer and more influential every day.
More than any other company I can think of, Tesla Motors is the Trojan horse of the Millennials, a secret weapon of creative destruction hidden in plain sight…in an attractive wrapper. And for car dealers, creative destruction is already a touchy subject.
According to data from the NADA itself, the net profit generated by the Parts & Service Department at the average dealership exceeds that of the New and Used Vehicle departments combined. But here’s the rub. Due to modern low-maintenance vehicles, net profit in Parts & Service Departments peaked in 2008 and has been declining ever since.
Tesla will exacerbate this belt-tightening trend because its vehicles have only a few replaceable parts: brake pads, windshield wipers and tires. These repairs are already handled at company-owned service centers, while software updates manage the rest and are downloaded.
Given an estimated 75% reduction in vehicle operating and maintenance costs, the picture for legacy dealers becomes seriously clouded if EVs become a significant portion of the consumer vehicle market in a decade or two.
In terms of numbers, Tesla is small potatoes, but symbolically, it’s one more nail in the dealer coffin.
Full Disclosure: Long TSLA
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Learn more about investing in TSLA at www.Teslachronicles.com
