“Give me back my 8000” – this is the message from a netizen in the comment section of Tesla’s official Weibo account. On September 16, an internal email showed that all owners of new, show cars and non-new Model 3 and Model Y delivered between September 16, 2022, and September 30, 2022, will be given an insurance subsidy of 8,000 yuan if they choose to buy our in-store insurance, and the insured type of insurance includes traffic insurance and car damage insurance.
Once the news came out, some Tesla owners who had their cars before September 16, expressed their inner dissatisfaction in various ways. Some owners commented on Weibo, Little Red Book and other social media platforms, while some extreme owners chose to go to Tesla offline stores and pull banners to defend their rights.
A similar drama was staged at the beginning of September, when on September 1, RISO opened a significant terminal discount on the RISO ONE model and announced the release and delivery of the new RISO L8 through official channels. This “price cut + production discontinuation and replacement” method has triggered the dissatisfaction of many old car owners.
Nowadays, why is the auto industry caught in the vicious circle of “the right to defend when the price is reduced”? And is there a bigger hidden problem behind Tesla’s preferential action this time?
The story starts with Tesla’s direct sales model.
Promotion, only because it does not sell?
Each price adjustment of Tesla can trigger a big shock in the industry. Last year was dominated by price cuts, and the first half of this year to price increases, almost all immediately implemented, with no buffer period to speak of. The reason why Tesla can do “real-time pricing”, is mainly because of the direct model it uses.
The traditional car marketing channel is dominated by 4S stores and dominated by dealers. Auto manufacturers supply dealers and usually do not sell vehicles directly to users. Instead, the display, sale, delivery and after-sales service of car products are usually done in 4S stores. Dealers as intermediaries earn profits from them. Tesla, which adopts the direct mode, is equivalent to “removing the middleman” and takes care of the whole chain of things by itself. What’s more, unlike the traditional dealership’s “one price for one store”, Tesla’s direct model takes the form of “one price”.
Of course, behind each price adjustment, Tesla must be from the enterprise itself, the market environment, the supply chain and so on many levels to consider. For example, the reason for last year’s price reduction is either because of the replacement of lower-cost lithium iron phosphate batteries, or the scale effect makes the BOM (bill of materials) costs down. And the price increase in the first half of this year is caused by the rise in raw materials for batteries.
This time, Tesla carried out an 8000 yuan premium subsidy, although the amount of discount and the form of subsidy is different from the previous direct price reduction, this money will be directly reduced when the user delivers the final payment, so we can also understand that this is a price reduction promotional behavior. So, there are various analyses of the price cut on the internet, such as Tesla is coming out with a new model, Tesla can’t sell anymore, etc.
(Image source: Internet)
In fact, while Tesla opened the promotion, it also made adjustments to the delivery time. According to the official website of Tesla China on September 16, the estimated delivery time for the rear-wheel drive version of the Tesla Model 3 as well as the high-performance version has now been reduced to 1-8 weeks and 1-10 weeks respectively. Previously, the estimated delivery time for the Model 3 was 6-10 weeks. And the entry-level Model Y has a delivery time of 1-4 weeks, the same as before.
So, many people have reinforced the conclusion that “Tesla’s demand is slowing down and it has no choice but to make promotions”.
But from last month’s data, Tesla did not sell poorly. According to the data of the Association, Tesla’s total sales in August reached 76,965 units, of which 42,463 units were exported and 34,502 units were sold in the domestic market. From January to August this year, Tesla’s Shanghai factory has completed 399,939 deliveries, just over 80,000 units short of catching up to the full year 2021 deliveries (484,130 units).
According to @ElectricBoxPrincipal’s analysis, one of the reasons for this offer is a large number of scalpers on the market, which in turn has led to serious problems with Tesla’s deliveries. Specifically, it’s because of the several rounds of price increases in the previous months that made early orders profitable. Because of the price differential, there were many scalpers running to Tesla to order cars. “Essentially, instead of increasing your sales, these scalpers are stealing your current customers to go fill the previous orders. These false orders will make the host factory’s production schedule, market policies and many other dimensions will be pre-judged. Once the decision made by misjudgment, the later impact will be great.”
A casual search on the salty fish, you can find a large number of resale Tesla orders of goods links.
(Screenshot from Salty)
All things considered, Tesla is only subsidizing the cost of insurance this time and enforcing it with a final payment reduction, and even limiting the pickup time to September 30. Obviously, this is to improve the conversion rate of orders, rather than pulling new order growth.
In fact, order-based production is also one of the best features of the direct model. When demand for orders is strong, car companies just build cars at full throttle to maximize production into sales. And when demand is down and abnormal signs, car companies can promptly adjust product planning and market strategy. But under the direct mode, the rapid response of car companies often may appear “back stabbing” user situation.
For example, the Ideal ONE, which announced the news of “discontinuation and price reduction” some time ago, made a quick market adjustment in September after the delivery volume dropped significantly in August – replacing the original Ideal ONE with the so-called replacement model, the Ideal L8. ONE model.
Is it really necessary to learn from Tesla to play direct operation?
There are two sides to everything, and the direct model is no exception.
In addition to the advantages of uniform pricing and quick adjustment mentioned earlier. The direct model can bring a more uniform service experience. As Elon Musk has said, “Tesla does network direct to ensure that all customers have the best experience across the chain from start to finish.” And Tesla has also officially stated, “The direct sales model is used to most effectively ensure that customers can enjoy excellent products and services.”
Indeed, traditional car companies are mainly selling fuel cars, and the early sales staff are not familiar enough with new energy vehicle products. At the same time, the service quality of dealer partners is uneven, which will directly affect the user experience in the purchase, delivery and after-sales links. Especially for new brands, it is crucial to win the user’s reputation through excellent service.
Ideal Auto’s mall store in Shanghai (Photo by Tiger on Saturday, September 17)
Perhaps it is really this definition of Tesla that has led the new brands established in recent years to follow the path of the direct model. For example, BAIC’s Pole Fox, Geely’s Pole Krypton, Dongfeng’s Lantu, Changan’s Avita, SAIC’s Zhiji, all of them are trying to get rid of the original dealer system and build direct sales channels from scratch. Even, began to learn from Tesla in shopping malls, and shopping centers to spend a lot of money to rent store doors.
But after the specific implementation, the problem comes – the expansion rate of direct stores is far less than the dealership model.
Visual data comparison is that the number of stores of Polar Fox in the first half of 2022 is 154, and is expected to reach 186 this year. Aritu’s plan is to inaugurate 105 Aritu Space stores this year, covering 48 cities nationwide. And the number of stores in Avita 11 is currently only 11.
And if we look at Huawei as a distributor, then ask the world AITO brand is also more like a direct sales model under a distributor system. As of August this year, the number of AITO Askworld user centers and experience centers has reached more than 700. By the end of 2022, the number of experience centers and user center stores is expected to expand to more than 1,200. It is no wonder that the Ask the World brand, which only started deliveries this year, achieved a delivery volume of over 10,000 units in August, reaching 10,045 units.
In fact, we can think about one question, is it bad to sell electric cars without the direct mode?
Take the “miracle car” Hongguang MINI EV, its sales model is the exact opposite of Tesla, Wuling completely relies on the distribution model. The dealer network is the core of Wuling’s marketing. In any prefecture-level city in China, or even in every county, you can see Wuling’s dealers and repair centers. In addition, BYD, which dominates the sales list with several models, has 1,599 dealers nationwide, surpassing FAW-Volkswagen (1,054) and SAIC-Volkswagen (1,008) in terms of numbers.
In fact, many traditional car companies have started to try to innovate in the dealership model. For example, Volvo in the layout of the city center stores, the use of direct sales model, positioned in the city’s core business district prime locations, the same can be done online orders, unified prices; manufacturers pricing, to solve the dealer price monopoly. Use it as a channel supplement on top of the dealership model, which in turn evolves into a supplement to sales.
Written in the end
In direct mode, the user is vulnerable, the business is also vulnerable.
Except for Tesla, the current direct model of car companies, production and sales scale are not large enough to be able to play this “one-stop service”. Over time, if a car company always has to cover the upstream from manufacturing to the sales terminal, I believe that the demand for capital is a bottomless pit. But the problem is, once the terminal sales problems, the whole chain is broken.
We can’t even rule out the extreme possibility that after a major decision is made at the end of the sale, a series of chain reactions will be triggered, eventually leading to a major collapse of a company.
