Last week Elon Musk announced that Tesla will close most of their dealerships in order to cut costs and the final price of the Model 3 by six per cent. That saves them around 2.400 dollars per car, looking at the 40 thousand dollars price tag for basic Tesla Model 3.
Tesla will keep some premium outlets in the most frequent and visible areas for boosting visibility and marketing activities. The interaction between car owners and car manufacturers is a very common thing in the car industry and it will remain in the Tesla service facilities. However, most of them will move online. Considering that Tesla’s buyers are already used to ordering their cars online, the change should not be critical in their buying process.
Tesla is perhaps the most obvious, but not the only car manufacturer who is retooling its retail process to cut costs. The company grew as an unconventional manufacturer by disrupting almost all the rules that exist in the car industry. On the other hand, it gives a clear signal to conventional manufacturers on how to cut costs in the environment that requires massive investments and quick adoption to new rules on the market.
Other, conventional, manufacturers have tried new sales channels and made a good deal in the short-term. Lidl and Fiat have recently joined forces in Germany by selling Fiat 500 online for 89 and 164 Euros (with full service) and sold out all of their cars on the same day. Their success proves that there is a future in internet sales in the car industry, bringing many advantages to car manufacturers.
For example, they could cut inventories, which represent a considerable cost – the USA alone had 3.8 Million cars in the inventory at the beginning of September last year, while their number of sold cars in the year 2018 was 17 million.
Selling cars online also cuts dealers margin that represents anywhere from 10 to 20 per cent or even 30 per cent of the purchase price. That means at least 5 or even 15 billion euros of yearly savings for a medium size manufacturer, which is far more than even the most advanced companies invest in R&D. Furthermore, the change in the sales chain would make the workforce in companies – hired or in-house – much smaller, leaner and more flexible to answer the challenges of the industry.
Tesla and Fiat are not the only car manufacturer thinking and acting towards internet sales.
Another advanced start-up Byton will use a small number of offline stores to boost online sales of cars and benefit from all savings mentioned above. Want to learn about other changes happening in automotive and in the autonomous marketplace? Join us at City as a Lab Summit, where the Vice President of Marketing at Byton Henrik Wenders is among the speakers, creating conversations that will change mobility as we know it
UPDATE 12th April 2019
This week Tesla CEO made a small step back with a correction of that statement and stated that only half of the stores are intended to close in the first place; this means 10 per cent immediately, while another 20 per cent are being evaluated and could remain open. As a result, Tesla will need to raise vehicle prices worldwide, by about three per cent on average. Only the basic Tesla Model 3 will keep the same price of 35 thousand dollars.