Large-volume car manufacturers can't evolve to match Tesla. From the brain of entrepreneur Elon Musk. A visionary, partly responsible for PayPal, arguably a software that shaped the 21st century by enabling online payments. This belief in the power of the internet found in PayPal sits at the heart of the Tesla purchasing process.
According to Evannex, "Tesla’s direct-to-consumer model changes the game for buyers, eliminating the long days of haggling prices at a dealership". With a streamlined purchasing procedure, the price from Tesla's website will come at the lowest. Without competing 3rd party dealerships, Tesla remains in control of its product.
Evannex continues to write, "the shift will be a win for the average consumer’s buying experience in eliminating dealerships, it may not necessarily be a win for the buyer’s budget". Without competing dealers, Tesla can monopolize their market.
How Tesla's Direct-To-Consumer Model Works
Tesla sees great success with its model. According to the BBC, Tesla's sales last quarter hit 343,000, which is up by 40% from last year. You can't really understand Tesla's direct-to-consumer model, without understanding the alternative. For better or worse at some point, the vast majority of us took a trip to a car dealership. Be that BMW, Audi, Porsche, Ferrari, or something more modest like Fiat or a used car dealership. These buildings with all their finery or lack thereof are middlemen.
Many view middlemen as the scourge of capitalist society. Leeches who move some paper, and make vast amounts of commission off someone else's work. Think salesman, recruiters, and real estate agents. Effectively individuals who know how to navigate a particularly tricky landscape. In the case of the car industry, the landscape is hard to navigate. Be that choosing a car or ticking the options.
Find a good dealer who wants the best for you and not just to line their pockets, and you're in luck. But the reality often comes far away from this. With the rise of platforms like Uber and Air BnB, silicone valley-based startups often aim to streamline by reducing bureaucracy. Tesla follows in these start-ups' footsteps. The Tesla brand does not rely on third-party dealerships and handles second-hand cars as well. Mainly so Tesla can have complete control over its image. As a result people only know about Tesla and what Tesla says, not whatever the dealer makes up to sell the car that day.
Furthermore, selling their car to the end consumer further controls prices. With dealerships selling extortionately priced used vehicles above MSRP during the pandemic, Tesla cars remained an attractive and even sensible purchasing decision. Controlling supply and generating their own demand through the company and its CEO's various exploits, Tesla remains in control. Effectively the company is a start-up that just happens to sell cars. Not a company that mimics trends in emerging brands.
Why Traditional Manufacturers Can't Use A Direct To Consumer Model
All this doesn't mean Tesla doesn't have franchises in local areas. Tesla's website heavily directs customers to their, Touchless Delivery option. From here a customer has three options, Express Delivery sends the car to a Tesla Location, where a Tesla advisor guides them to their car. A Tesla can also get delivered to any address with Tesla Direct or another carrier of their choice if they live more than 220 miles away from a Tesla location. Specifying a Tesla seems remarkably simple. For example, the Model 3 has a total of 7 options. You choose your drivetrain, paint, wheels, leather, a few self-driving options, and a charger. Simple and easy to use, no anxiety could stem from building your Tesla.
Now compare this to Porsche's configurator with nearly 100 options. If you can dream of it, you can pay for it. Even parts like rear windscreen wipers cost more alongside various stitching, infotainment, and an array of options. BMW, Mercedes, and Audi suffer from the same issue. A car dealer helps customers cut through the mist of options, and finance packages, and haggle for the best price. These legacy brands all have this personalization built into them. Buying a Tesla offers as much complexity as purchasing the latest iPhone. Something familiar to the bulk of Tesla buyers. Aging automotive marques set a high standard of customization and variation within a model that makes a direct-to-consumer model impossible.
Furthermore, car manufacturers rely on their dealers. They act as ambassadors for the brands, not only does the local BMW dealership advertise BMW every time you drive past, but they're responsible for building and maintaining a marque's relationships in a given area. Switching to a direct-to-consumer sales model would not only cut these ties and presence in people's lives. But also leave many car dealers and supporting staff be that mechanics, after the sale and even receptionists out of the job and another empty shop in town. Not exactly an amazing PR move to leave dystopically empty stores behind them.
Carmakers Are Trying To Compete With Tesla's Direct-To-Consumer Model
The pandemic saw car dealerships shut down. But the industry got creative and found ways to keep going. The rise of online car purchases, where a vehicle arrived at your door came. Some brands now even offer car subscription services. Jaguar offers a service called Pivotal. According to Jaguar, an "alternative to traditional ownership and leasing plans, Pivotal gives you complete control over your access to the Jaguar and Land Rover portfolio". In other words with tiered membership, you get access to different levels of cars. Offering the freedom that you expect from a streaming service. Volvo also offers a similar subscription, which the Swedish marque refers to as "One fixed monthly fee, no hidden costs and only 3 months notice".
Sources: BBC, Evannex, Tesla