The Tesla Approach to Sales And Distribution

Have you bought a Tesla car yet? If not – which is actually quite a high probability given the car price – you haven’t seen how easy it is to buy a car with just a few clicks.

You go to Tesla’s site and click the prominent red order button. It is directly on the frontage:

The big red button - teslamotors.com

The big red button – teslamotors.com

 

You get some options in the design studio for configuration, but basically you can as well just simply click on order…

 

Press the red button - teslamotors.com

Press the red button – teslamotors.com

 

… and the only thing you do is to pay the 2,500 USD  (for the Model S) down payment. You can even do that by paypal! Your car will then be delivered to your door later this year.

 

Deliver my new car - teslamotors.com

Deliver my new car – teslamotors.com

 

(By the way: their process is standardized world wide. So if you are in China and want to order your Tesla, it looks and feels the same. You can simply 订购 and get your car delivered. Of course Alipay is supported as well.)

Sounds and looks familiar? Looks like online shopping for books or DVDs? Exactly! Tesla is a car manufacturer, but in its processes it incorporates a lot of ideas from the tech industry. It is not just for the order process, though. There whole sales and distribution is optimized to be different from classic car OEMs. This is partly due to their (still) low volume of car production, which makes it difficult to attract dealers without getting lost and compete in a sea of gasoline cars around them.

A more important aspect for Tesla is to be able to control the product experience from build to customer service. Elon Musk, Tesla’s Chairman, wrote a blog post a while ago on this topic. They want to educate customers about the product and use outlets such as own stores and gallery locations with high foot traffic for that. The product specialists at those outlets are not on commission though, and thus will never have to pressure for customers for sales. As Elon wrote: “Their goal and the sole metric of their success is to have you enjoy the experience of visiting so much that you look forward to returning again”.

With their “build-to-order” approach they enjoy advantages such as low inventories and being able to build the right product-market-fit close to their customers. With their order-and-pre-payment model they generate additional cashflow from the deposits they get from the customers several months in advance before delivering (or even building) the car. Their tight control of the service chain allows them to offer compelling after-sales packages for customers for more customer retention. In fact, they even integrate loyalty / affiliate programs such as the newly announced referral program. “For every referral that current owners generate, they’ll get $1,000 — and the new buyers will get $1,000 off their purchase. (…) The referrals will be made through a custom link offered to current owners, which makes it sound a lot like any other referral program on the internet”.

However, Tesla does have to battle other challenges in their existing model, especially if their car volumes are continuing to grow. They have to deal with a potential logistics nightmare of direct selling and delivering more and more cars to end consumers, they still have to invest in their showrooms and outlets, and they still have to provide service for the cars somewhere. For customers it means that they cannot simply walk into a Tesla outfit and buy one on the spot, which might harm their sales in markets, such as China, which appreciate the instant availability.

Time will tell how much benefit Tesla and their customers will get. One thing is for sure: for Tesla those different approaches to sales and distribution could be a long-term differentiator to other “classic” OEMs, as a lot the things Tesla does you can only do if you do not have a legacy structure of existing dealerships and service locations.

Apple reportedly met with BMW and is / was interested in the BMW i3 car body

BMW i3

BMW i3 – bmwgroup.com

 

There are many speculations in regards to technology champions such as Apple and Google and their potential interest in entering the automotive market. Entering the market not simply as technology provider for things such as Carplay or android Auto, but as a full-blown OE with their own “iCar”.

The German business journal manager magazin reported on an alleged visit of Apple CEO Tim Cook and some of his top management to BMW’s production plant in Leipzig, Germany. At this plant BMW is producing their electric vehicle BMW i3. According to the magazine, the talks between Apple and BMW have not led to a specific follow-up project though, and both parties aligned to stay in regular contact.

Der US-Konzern, bislang vor allem mit Computern und Mobiltelefonen erfolgreich, bereitet seit einiger Zeit Entwicklung und Bau eines iCars vor. Das Auto würde genau wie der i3 ein Elektroauto. Apple-Chef Tim Cook besichtigte deshalb während eines Besuchs bei BMW gemeinsam mit anderen Topmanagern die i3-Produktion in Leipzig.

Source: manager magazin

 

Beijing police shut down massive iPhone counterfeiting operation

Police in Beijing have busted a factory that produced more than 41,000 fake iPhones worth as much as 120 million yuan ($19 million), including some that reached the United States, and have arrested nine suspects in the counterfeiting operation.
(…)

Police seized 1,400 handsets and large quantities of accessories during the May 14 raid. In the United States, the newest Apple Inc handsets can fetch $649, or more, depending on the model.
Source: Reuters

There still seems to be a market for willing (or scammed) customers to buy a fake iPhone. I had the chance to look at one of those devices here in Shanghai. The look and feel of the hardware is almost indistinguishable from a genuine iPhone. The quality of the components – such as screen or camera – is a huge difference though. On the software side they use an android OS with an iOS skin. Once again, the interface is almost a pixel perfect copy. They even make their own android version of iOS system apps like Photos or Music. The illusion breaks, though, the moment for example the android keyboard pops up, or an android system message appears.

For an inexperienced buyer without prior iPhone / iOS knowledge it looks pretty convincing, though, and I am not surprised to see people falling for the scam.

Your Car is going to get Hacked!

Having state-of-the art cyber-security and protection for your car will get more and more crucial, with having more and more cars connected to the Internet. Obviously, your car’s connection to the Internet is there for for various reasons such as telemetry data or value added services, but will get even more integral for solutions of autonomous driving.

Previous attempts to control cars over the CAN bus were rather clumsy and required physical access to the CAN to be possible.

Back then, however, their hacks had a comforting limitation: The attacker’s PC had been wired into the vehicles’ onboard diagnostic port, a feature that normally gives repair technicians access to information about the car’s electronically controlled systems.

Source: “Hackers Remotely Kill a Jeep on the Highway—With Me in It” wired.com

However, as usual in this topic, it is always just a matter of time until somebody finds a better exploit for easier access and more control. A report from wired.com seems to indicate that two researchers – Charlie Miller and Chris Valasek -have found a way into at least one of the common connected car solutions – Uconnect from Fiat Chrysler. The report states that Miller and Valasek were able to remotely get control of the head unit of affected cars, install patches to the firmware, and subsequently are able to communicate with the CAN bus. With far reaching options from turning on the wipers to disengaging the transmission or brakes.

And thanks to one vulnerable element, which Miller and Valasek won’t identify until their Black Hat talk, Uconnect’s cellular connection also lets anyone who knows the car’s IP address gain access from anywhere in the country.

(…)

Miller and Valasek’s full arsenal includes functions that at lower speeds fully kill the engine, abruptly engage the brakes, or disable them altogether. The most disturbing maneuver came when they cut the Jeep’s brakes, leaving me frantically pumping the pedal as the 2-ton SUV slid uncontrollably into a ditch.

Source: “Hackers Remotely Kill a Jeep on the Highway—With Me in It” wired.com

We still have to see proof and validation of the exploit, though. Miller and Valasek are going to present during the next Black Hat Conference, and I guess (and hope!) that they will have some attentive automotive guys in the audience.

 

The Importance of China for Apple

Apple® today announced financial results for its fiscal 2015 third quarter ended June 27, 2015. The Company posted quarterly revenue of $49.6 billion and quarterly net profit of $10.7 billion, or $1.85 per diluted share. These results compare to revenue of $37.4 billion and net profit of $7.7 billion, or $1.28 per diluted share, in the year-ago quarter. Gross margin was 39.7 percent compared to 39.4 percent in the year-ago quarter. International sales accounted for 64 percent of the quarter’s revenue.

Source: Apple

Apple Q3 2015

Looking at the detail numbers the importance of China gets more and more obvious: An overall YoY growth of 33% for Apple, fueled by a 112% growth coming from China. At Apple, China has already surpassed Europe as second largest market after the US. And with a very high chance, it might not stop at being Number 2.

China Car Production June 2015 – weak Sedan segment slows down growth rate to 4.4% YTD

June 2015 was the first month in years to show a negative growth rate of -0.7% compared to the same month in 2014. This brings down the overall YTD growth to around 4.4%, with 10.33 mn vehicles produced until end of June 2015. The market again suffered due to the weaker demand on Sedan models and Minivans. On the positive side we still see a very strong SUV demand.

 

in mn units. China Light Vehicle Production - YTD June 2015. Source: CAAM

In mn units. China Light Vehicle Production – YTD June 2015. Source: CAAM

Intelligent Transportation Systems (ITS) Market Value to grow over 38 bn US$ by 2020

ITS Overview. Source: www.etsi.org

ITS Overview. Source: www.etsi.org

 

Growing number of vehicles and increasing population has led to the need for effective traffic management. An Intelligent Transportation System (ITS) integrates the transportation network with ICT (Information and Communications Technology) to improve performance, enable multimodal transport and help alleviate road accidents and optimize fuel consumption.

(…)

The global intelligent transportation systems market was estimated to be valued at USD 14.59 billion in 2012 which is expected to reach USD 38.68 billion by 2020, growing at a CAGR of 13.0% from 2014 to 2020.

Source: Grandview Research

 

The car – and other modes of transport – are just at the beginning of their digitalisation. It is not just about to make transport safer and more efficient, but the prospects of having a bright future in selling software, hardware, and services, which attract the various companies into the market. Classic automotive players such as OEMs and suppliers will have to face serious competition from the non-automotive tech companies such as Apple, Google, Alibaba, Huawei, etc. in the future.

Thoughts from 1992

What happens if a whole country – a potential ‘region’ in a fully integrated community – suffers a structural setback? So long as it is a sovereign state, it can devalue its currency. It can then trade successfully at full employment provided its people accept the necessary cut in their real incomes. With an economic and monetary union, this recourse is obviously barred, and its prospect is grave indeed unless federal budgeting arrangements are made which fulfil a redistributive role.

source: Wynne Godley – Maastricht and All That

 

I saw this paper from 1992(!) being re-tweeted by my former Economics professor Simon Evenett of The St.Gallen MBA. The author sees the issue of having an monetary union without a federal European government, thus preventing necessary actions (such as devaluation of currency) of individual countries.

 

As was clearly recognised in the MacDougall Report which was published in 1977, there has to be a quid pro quo for giving up the devaluation option in the form of fiscal redistribution.

source: Wynne Godley – Maastricht and All That

 

Currently Europe does not want to do either of both. Neither fiscal redistribution / transfer payments including a central European government, nor giving the option to drop out of the Euro. Where is the way out? Does the described situation from 1992 sound familiar?

An Empire Strikes Back: Germany and the Greek Crisis

This is as far from what Germany wanted as can be imagined. But Greece could not live with German demands, and Germany could not live with Greek demands. In the end, the banking crisis gave Germany an irresistible tool. Now the circumstances demand that the Greeks accept austerity and transfer key elements of sovereignty to institutions under the control or heavy influence of the Germans.

source: Stratfor

 

Extremely interesting opinion piece from Stratfor on the Greek crisis. While I do not agree on many points such as the “aggressive inflexibilty of the Germans”, I still believe that the current solution is not sustainable on the long term. The question remains whether we should make a painful break rather than draw out the agony.

Continental Closes Acquisition of Elektrobit Automotive

With the purchase, the international automotive supplier, tire manufacturer, and industrial partner Continental is further expanding its systems and software expertise for solutions in the automotive industry. Elektrobit Automotive is a specialist in highly innovative software solutions.

source: Continental Corporation

 

Good move. Software rules the world, and changes industries. It has only just started in Automotive.