The Auto Industry As You've Never Seen It Before
Jun 11th 2012 7:09PM
Updated Jun 11th 2012 8:04PM
The idea of buying a car at your local shopping mall sounds a bit wacky -- at least until you meet start-up electric-car maker Tesla Motors (NAS: TSLA) .
Forget everything you know about electric cars. Unlike the golf-cart designs of competing EVs, Tesla's new Model S sedan promises superior performance to the tune of zero to 60 mph in 5.6 seconds and a range of 300 miles for the high-end 85-kWh battery version, and all models get an interior complete with a 17-inch touchscreen computer. This is a company that's shaking up the industry in more ways than one.
Changing the rules of retail
Buying a new car can be a daunting task. However, with the help of George Blankenship, vice president of worldwide sales for Tesla, the company's retail strategy is nothing like the so-called dealership experience you've come to loathe. Blankenship's 10-year history as Apple's (NAS: AAPL) real estate chief makes him a perfect fit for Tesla as the Silicon Valley-based company attempts to reinvent the car-buying experience.
Tesla is opening mall stores around the country to showcase display models of its upcoming zero-emission cars. Mall-goers are welcome to take pictures, sit in the car, explore, and ask questions. "We want to engage with people when they're not thinking about buying a car," Blankenship insists. The first of these new concept stores is now open in White Plains, N.Y.
But not everyone sees this as a winning approach to selling cars.
According to CNN, Leonard Bellavia, an attorney who represents auto dealers, believes that "Tesla's idea is doomed to failure." He adds: "Tesla will go back to the old ways. The idea that they're reinventing automotive retailing is somewhat laughable."
Now this sounds familiar.
In 2001, just a year after Blankenship joined Apple, the Mac maker opened its first retail store to similar scoffs. In fact, Bloomberg published a story that year with the headline, "Sorry, Steve: Here's Why Apple Stores Won't Work." Dozens of Wall Street analysts followed suit. MacWorld quoted one such analyst saying, "Apple will turn the lights off within two years and will have a very bad and expensive experience."
In retrospect, these naysayers couldn't have been more wrong. Today, Apple is the world's most valuable company, with more than 300 Apple Stores worldwide. The iProducts retailer is the top U.S. chain by retail sales per square foot, too. The average U.S. retailer brings in sales of $341 per square foot, but Apple racks up $6,000.
In 2001 at the MacWorld trade show, Steve Jobs said: "Buying a car is no longer the worst purchasing experience. Buying a computer is now No. 1." With the help of Blankenship, Jobs changed that. Leading from Apple's example, I think Tesla's pioneering retail concept will be anything but "laughable" down the road.
True, Tesla could run into potholes related to state laws that forbid automakers from owning dealerships. However, this is something the company considered years ago when filing for its initial public offering. Management addressed this concern in its S-1 paperwork, noting:
"Many states have laws that may be interpreted to prohibit Internet sales by manufacturers to residents of the state or to impose other limitations on this sales model, including laws that prohibit manufacturers from selling vehicles directly to consumers without the use of an independent dealership or without a physical presence in the state."
If auto dealers were to take action against the manufacturer-owned stores, Tesla might have to adjust its distribution model to comply with state laws. But even then I suspect Tesla would rise to the occasion in true game-changer style.
11 days and counting
For now, management is focused on getting its seven-passenger Model S car out the door by the early delivery date of June 22. The new zero-emissions sedan raises the bar not only for other EV makers but also for traditional automakers. With a top speed of 125 mph, other electric vehicles won't just look like golf carts by comparison; they'll feel like it as well.
For example, the 2012 all-electric Ford (NYS: F) Focus tops out at a speed of 84 mph, fits only five passengers including the driver, and has a limited range of roughly 100 miles. Tesla's Model S, on the other hand, has a variety of ranges (depending on the battery package and pricing) and offers a base range of at least 160 miles. Tack on the innovative retail strategy and visionary leadership, and what emerges is a disruptive force in the auto industry.
Investors, start your engines
At the start of this year I chose Tesla as my "Leap of Faith" investment -- piling $5,000 of my savings into the position. Today, I'm more confident than ever that Tesla will not only beat the odds, but also shake up the auto industry in the process. That's why I have a CAPScall of outperform on the stock.
Luckily, you can profit from the new technology revolution whether you share my optimism for Tesla or not. Get instant access to a special free report from The Motley Fool titled "The Future Is Made in America." In the report you'll discover other disruptive stocks that are already churning out big bucks. The report is free, but it won't be around forever. so get your copy now.
At the time this article was published Fool contributor Tamara Rutter owns shares of Tesla and Apple. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Ford, Apple, and Tesla Motors. Motley Fool newsletter services have recommended buying shares of Tesla Motors, Apple, and Ford, creating a synthetic long position in Ford, and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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