How Do The Supercharger Network And Direct Sales Give Tesla A Competitive Edge?

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With more than 500 supercharger stations hosting more than 3,000 superchargers in the U.S., Tesla Motors (NYSE:TSLA)  is working towards a building a network to enable quick and convenient charging options for owners of its Model S users. The company claims that 30 minutes of charging time at any of these stations is enough for the car to reach the next station or a distance of 170 miles. Tesla is also working with partners to provide charging stations at restaurants, hotels, ski resorts and similar such places where the customers spend considerable time during travel to take advantage of these stops for charging.  The company has a competitive edge over other players in the electric vehicle space, given that supercharging is free for life for Model S users and is claimed to be the world’s fastest charging solution which no other player has been able to replicate.  In September 2015, Tesla motors reported that Super Chargers powered five-fold more road trips than last summer. [1]  The ubiquity of charging stations makes Tesla’s cars more viable to consumers and we believe this gives it a competitive edge, which should help capture a higher market share in the electric vehicles space.

Tesla does not have a franchise dealer network,  unlike most other automotive companies including Ford, General Motors and Honda Motors. It sells its cars directly to consumers online with limited support from physical stores. This is possible because Tesla is the only automaker which produces fully electric vehicles at a significant scale and these vehicles do not need the kind of after sales service support that traditional ICE (i.e., Internal Combustion Engines) vehicles need. This saves the company a lot of money because dealerships tie up a lot of capital.  A dealership needs a lot of real estate, both for its dealership and repair facilities and for its large inventory of new and used vehicles. In order to be able to function, it also must maintain and sizable staff of trained sales  people, mecahanics, accounting, administrative and management professionals.   In contrast, stores are much cheaper and easier to operate. Additionally, dealerships often need to be subsidized with financing and incentives by auto makers.

 

While its unique model does provide a competitive edge over other players, we believe Tesla is headed towards carving a niche for itself and does not seem to be a threat to other players such as Toyota. The company has opened up its patent to competitors and sold battery packs and power trains to potential competitors such as Daimler and Toyota in the past. We do not expect Tesla to gain the position of market leader in the premium vehicle space in the near future, but believe its model is providing it an edge over other players in the electric vehicle space.

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Notes:
  1. Tesla Supercharge Use Increased 5x Over In 1 year , cleantechnica.com, September 16, 2015 []