The Elephant In The Room

Monday, March 3, 2014

 

Could it be that bosom buddies Tom and Henry have realised the better business model with a recurring revenue stream is the combustion engine vehicle, and are secretly agreeing to park the electric one in the garage?

 

Maybe that is what Mr. Ford is whispering to Mr. Edison…

 

Money makes the world’s wheels go around! – and it has done so with spectacular success for over 100 years. So some might say if it ain’t broke don’t fix it!

 

It all comes together within a tried and tested process to produce a pot of gold at the end of a very long and colorful rainbow! Product concept, research and development, engineering, through to manufacturing and delivery, marketing, sales, service, spare parts…and ultimately disposal.

 

The whole ‘machine’ is carefully calibrated and financially modelled, to deliver a product people want, at a price they can afford, and that conforms to regulation. Like any recipe, changing something can quickly make it unpalatable, and the vital ingredient of the auto industry has always been the internal combustion engine.

 

With over a billion vehicles on the planet, there is huge vested interest in retaining the status quo across the value chain. However, in my view the current Tesla challenge to it is wholly inevitable, as the EV proposition is in no way a juicy carrot to Dealers. Vehicle margin with little else to follow does not cover existing overheads – but it would be a great attraction to the showrooms in a multi franchise facility, and I suspect this is one the reasons we are seeing the schism and legal challenge to the 'Freemont Freedom Fighters' efforts.

 

Could it be that the relatively poor take up of the electric vehicle offer is in part a result of ‘switch-selling’ in the showrooms? I have been a car salesman and I would always seek to help my customers but inevitably sell what works best for the business and me – not form part of an altruistic quest to clean up the planet. Most of us are familiar to some extent with the sophisticated seduction methods employed to get us to buy what we are offered not what we want/need.

 

Some are saying ‘we’ve tried and failed with direct sales – it didn’t work!’

 

 


However, ‘the elephant in the room’ with the EV proposition is lack of friction parts. Tesla have the challenge to sustain a business without this, and a Tesla Dealership based on the existing auto model would not work. Multi franchising would only likely cannibalise it.

 

 



So the task at hand is how to re-calibrate a new business model where parts and service are a minor not a major part of it all.

 

The auto industry has provided myself and millions of others with a livelihood over many years – and I don’t believe it is some sort of ‘conspiratorial evil empire’ desperately trying to smother the EV proposition at birth.

 

Tesla is indeed at the vanguard of a new movement – in both energy and motive power, and the evangelism of it all from both customers and supporters is extraordinary.

 

To many their presence is prescient of some of the extreme challenges facing the planet – with high-level city pollution – and over 50% of the global population - ranked 1.

 

The current pace of change and legislation seems far too incremental to Mr Musk and his cohorts, so the disruption they are creating is probably good news for us all in reality.

 

In conclusion, to quote George Bernard...

 

"The reasonable man adapts himself to the conditions that surround him... The unreasonable man adapts surrounding conditions to himself... All progress depends on the unreasonable man."

 

 

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