Tesla (NASDAQ:TSLA) plans to add nine stores, two galleries, and 17 service centers by the end of this year. This news has been perceived positively by the market, after investors and final consumers were concerned that one would have to drive 150-200 miles to reach service facilities and, given the range limitations, drivers might find themselves in the middle of a highway with an empty battery.
Also, many investors were concerned regarding the expensive scheme of having Apple-like showrooms, given that the company is already going through tough financial times. However, CEO Elon's blog post clarified the situation, as Tesla prefers to have a company-owned store and service center model. Existing franchise dealers have a conflict of interest in promoting electric cars, as promoting them would mean lower gasoline car sales and therefore electric cars would not get a fair chance to reach the market.
The third concern is about regulations involved in operating a company-owned store. Two lawsuits have been filed up until now against Tesla's unique retail strategy. Elon's reply suggests that Tesla is not going to step back from its strategy, and in fact Tesla is abiding by all the rules and regulations.
Enhanced Service Centers Network
Tesla, at the beginning of 2012, had 10 stores, one gallery, and nine service centers in the U.S. Now it plans to expand it to 19 stores, three galleries, and 27 service centers. The expansion of service stores will mean easy access for Tesla drivers. After the expansion, 85% of all Model S reservation holders will have to travel no more than 50 miles to reach a Tesla Service Center. 92% of reservation holders will come within a 100-mile radius of the service center.
As already mentioned, potential buyers showed their concerns that the battery range may not make it convenient for users of the Model S to go to service centers. However, even before the expansion, there was no need to drive the car to a service facility. Tesla has the option of a $600/year service plan, under which service rangers come to the driver and fix the car on the spot. In case they are unable to do so, the responsibility of moving the car from one place to another is theirs.
Expensive Retail Strategy and Lawsuits
Tesla's stores have been designed by George Blankenship, the man behind the brand building strategy of Apple. The stores are being built in 10 different states. Most of the stores are in shopping malls. The ownership of the dealership with the company has led to open resentment among dealerships, who have remarked that a manufacturer cannot own a dealership as that will bring it in direct competition to dealers who have invested time and effort to promote their businesses. However, Elon believes that since Tesla has not granted any franchise in any part of the world, this rule does not apply to the company. Also, dealers are not allowed to be located in a mall. In this case, Tesla argues that it does not book reservations on site. In fact, interested people are told to go to the website to place an order.
As already mentioned, Elon does not believe in selling the Model S through a conventional car dealership agency. According to him, when people buy the car from their local dealer, they have already decided which car to buy and therefore Tesla will never get a real chance to market itself while being displayed at a run-of-the-mill dealer store. Placing the stores in a mall is a striking idea, which will not only gain attention from the general customers, but will also be marketed in a proper fashion given that company employees will know more about the product than a regular dealer. Elon claims that two lawsuits that have been filed are from a Fisker dealer and an auto group that has been repeatedly demanding that it be granted a Tesla franchise. This shows the evil motivations behind the lawsuit.
With the passage of time, Tesla is slowly and gradually addressing the concerns of its investors. With an enhanced network of service centers, customers will find it easier to maintain their cars. Recently, the company has also been working on installing supercharger systems that recharge the car in less times than it takes to eat lunch. The charging systems have been strategically placed near restaurants. The charging is free. Half an hour's charge can give an additional 150 miles of range. Therefore, as Tesla manages to address investor concerns, the stock is expected to go up.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The article has been written by Qineqt's Industrial Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.