Professional Community for Car Dealers, Marketing, Advertising and Sales Leaders
Tesla CEO Elon Musk recently tweeted that he wanted to take Tesla private, which has garnered a lot of attention. Hey, I realize that Tesla as a company can be a polarizing issue in our automotive industry. But this is something you may want to pay attention to.
Public company CEOs are notoriously beholden to quarterly projections. If you’re not familiar with the stock market, every quarter, the CEO and CFO of publicly-traded companies have a “earnings” call with an analyst to share financial performance, projections etc., and additionally they provide “guidance” for the upcoming quarter.
Truth be told, secretly most CEOs of public companies hate this practice because to compete they are often focused on research and development with an eye on long term viability, rather than the next quarter profit. Similar to meetings dealers have with their District Operations Managers (DOMs), except that these dealer calls happen every month with questions such as: “How many units will you sell next month (new and CPO?); and “How much revenue is expected in fixed ops?” etc.
The answers dealers give to their DOMs are very similar to the answers tech companies give to Wall Street… they are guesses. No dealership knows without a doubt exactly how many vehicles they will sell next month. They simply set goals by forecasting based on sales achieved at the same time the previous year, combined with inventory quantity, dealership traffic, promotions and staff talent. But, in the end, it’s all just a guess. Just like the answers these large tech companies are forced to give.
Take a look at Amazon. Jeff Bezos lost money daily. When investors asked “why?” he responded that if Amazon stopped R&D expenses they would be profitable the next day but it’s future would be more profitable by continuing to invest in R&D until they had a rock-solid base, then they could make money. And now they have topped almost a trillion-dollar valuation. In fact, according to TechCrunch, Amazon now accounts for an astounding 49% of e-commerce in the United States.
Tesla is following a very similar path. It is also mainly a R&D company, constantly innovating and coming up with new, crazy but viable ideas. It is also losing money on a daily basis. But it continues on the R&D path.
When market analysts and Wall Street come knocking on Elon Musk’s door, he’s barraged with the same questions thrown at Amazon. Perhaps his Twitter announcement about going private is his way of voicing frustration about having to answer these questions with guesses. By taking Tesla private (he has since backed away from this position as wall street also controls his capital raises), he can perhaps avoid answering these questions and simply continue to innovate.
Only time will tell. Business plans and net worth for R&D-based companies are always predictions and guesses, not precise. When you miss estimates, Wall Street will kill you, but it also has a short memory and, should Tesla succeed, it will be forgiven.
So, getting back to why dealers should care. Well, here’s the deal: As much as you may dislike the distribution model Tesla is trying to achieve, if Tesla and Elon succeed, dealers like you will have to live with it.
I believe Tesla only need achieve a 2% market share to make it a viable and authentic automotive manufacturer. As of July 2018, it has already achieved a 1.44% market share, exceeding sales of the BMW 2,3,4 and 5 series; Mercedes C, CLA, CLS and E-Class; Audi A3-A7; Lexus ES, GS, IS and RC; Cadillac ATS, CT6, CTS and XTS; Infiniti Q50 and Q60; Acura RLX and TLX; Volvo 60 and 90 series; and Jaguar XE and XF!
Love them or hate them, it certainly appears that Tesla is successfully gaining ground – and quickly.
While you may not be a fan of Tesla, you certainly should be planning for the day Tesla becomes a true automotive manufacturer (in terms of market share). I would advise you to start now and invest in making your dealership a convenient & transparent place to do business and invest in the long term!