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What are your thoughts on the two dealer distribution models?

*by Darryl Siry, former chief marketing officer of Tesla Motors*

Wired said:
Fisker Automotive promises a car with innovative powertrain technology, but it is sticking to the traditional playbook for distribution and sales by signing up established dealers in the United States and abroad. Tesla Motors on the other hand is building company-owned stores in a bid to revolutionize how cars are sold in addition to how they are powered. Each approach has advantages and pitfalls and may ultimately play a larger role than technology in determining which company dominates the premium EV market.

The Fisker announcement that it is appointing a single distributor for Europe to gain access to 100 independent dealers underscores how different its approach is from its leading competitor. Tesla has opened two stores in Europe with another coming to Monaco soon.

Here in the states, Fisker has signed up 33 dealers to sell the Karma plug-in hybrid when it is released next year. Tesla’s opened six stores in the past 18 months. The relative ease with which Fisker can announce such a large number of retailers plays to the notion that independent distribution is the superior strategy, but it doesn’t capture the real story.

Fisker VP of Global Sales and Marketing Marti Eulberg told Wired that “the opportunity we have as new car company to partner with a proven retail network is the best of both worlds. It allows us a greenfield to structure our retail network in the most efficient manner, while being able to ensure that we have best that is out there in the area of customer satisfaction, delivering a premium experience.”

In essence, Fisker is content with building a car company and partner with retailers while Tesla aspires to build a car company and build a global retail distribution company. (And a powertrain development company, if it can successfully expand third-party business beyond the deal it has with Daimler to help with the Smart EV.)

Most in the automotive industry think the idea of a fledgling car company building its own global retail network is insane. But that perspective is based on a deep-seated bias for how things “always have been done” and how things “are supposed to work” in the car business, not an objective reasoning of the risks and rewards of such a strategy. It’s the same type of thinking that put the auto industry on life support as it failed to adapt to a rapidly changing world. Distribution via independent dealers is as deeply embedded in the culture of the industry as propulsion via internal combustion. It stands to reason that the upstart innovator in electric propulsion also would rethink the industry’s sales model.

But as easy as it is to celebrate innovation over established business models, the capital intensity and execution complexity involved in building a global distribution network adds significant risk to Tesla’s business model beyond the monumental challenges of growing into a large scale, profitable EV manufacturer. With this risk comes the potential reward of capturing the value that exists on the distribution side of the business. For a premium brand that can be as much as 30 percent of the total market by net revenue, which is the spread between wholesale and retail price including the cut for the distributor. Then there are the profits from service and parts (which may not be as lucrative for relatively simple EV drivetrains as it is for conventional cars.).

Tesla captures 100 percent of the retail dollars for every car it sells. However, it must raise tens of millions of dollars of capital and bear the enormous costs of establishing brick and mortar stores. A Tesla spokesperson pointed out that their unique mobile service model, the Tesla Rangers, “along with the relatively low maintenance and service requirements of EVs means fewer bricks-and-mortar stores [are required].” Fisker’s approach avoids these costs, but it must cede a significant portion of its retail selling price to distributors and retailers to cover selling costs.

For Tesla, it amounts to a more highly leveraged bet on its success – if it wins in the the marketplace, it will win big. If volumes are lower than anticipated, however, Tesla may find its bottom line under significant pressure from high overhead costs while Fisker’s outsourced distribution model provides downside protection and flexibility.

Disclosure: Darryl Siry was the chief marketing officer of Tesla Motors from December 2006 until December 2008 and is a special advisor to Coda Automotive.
While Tesla's distribution model may help retain profits, I think they'll see their distribution model hinder them once they try to launch the higher-volume Model S. For now it works fine because the Roadster is a low volume product.
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