Tesla Motors Inc (NASDAQ:TSLA) has been in the news recently for both the good and the bad. Tesla Motors Inc (NASDAQ:TSLA) just revealed a battery swapping service that takes place in 90 seconds, less time than it takes to fill up a tank of gas, and potentially ending the controversy of owners having to wait too long for their vehicles to recharge.
Tesla is also in the cross-hairs of dealer networks. The dealers are claiming that Tesla Motors Inc (NASDAQ:TSLA) is a manufacturer directly competing with them, and they provide a valuable service to the general public, whereas Tesla is just a company that cannot provide that level of service without a network of its own. Only time and voters will tell what happens in this battle.
Stepping on Dealers’ Toes
Tesla Motors Inc (NASDAQ:TSLA)’s sales model is to directly sell its cars to consumers, totally bypassing the dealer networks that General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) have spent decades and millions of dollars building. The National Automobile Dealers Association has stated that it offers “a reliable network for sales and service, which is strictly regulated to ensure the vehicle transportation needs of car buyers are met.”
Fiskar Automotive is a great example of a car company growing too fast with too little support. The Karma was a cousin of the Volt, and shared much of the same technology as General Motors Company (NYSE:GM). However, potential buyers were turned off by the low number of shops to repair their cars. This, among supplier issues, led the ambitious company to file for bankruptcy this year.
Tesla Motors Inc (NASDAQ:TSLA)’s potential buyer market could skyrocket if it were to team up with General Motors Company (NYSE:GM) or Ford Motor Company (NYSE:F). Tesla sold over 4,750 Model S cars in the first quarter of this year. Access to the dealer networks would give Tesla access to thousands of locations and give consumers a place to test drive the vehicle.
Competition is heating up
GM’s Volt and Ford Motor Company (NYSE:F)’s C-MAX may be just getting their bearings, but these two giants in the auto industry know that they have customers that are uncomfortable purchasing cars over the Internet, and these customers in the over 45 category are the wealthiest demographic in the US. Those looking to purchase electrified vehicles that are more moderately priced than the Tesla scooped up plenty of vehicles from Ford & GM. Year to date, Ford sold 3,711 C-MAX hybrids. While across the street GM sold 9,855 Volts year to date, and over 30,000 Chevy Volts and Opel Amperas last year.
With a market cap of over $12 billion, Tesla has a higher value than Mazda. As GM launches the Cadillac ELR early in 2014 Tesla’s stock price needs to fall more in line with its fundamentals.
GM was able to eek out 2.8% net profit margins while funding its pension liabilities and repurchasing shares from the US government; it pays no dividend. Ford, on the other hand, has a net profit margin of 4.3% and pays out 17% of its earnings to support a dividend of 2.4%. Both companies have massive pension obligations, however Ford’s management team has been able to return to profitability without declaring bankruptcy.
Tesla Motors Inc (NASDAQ:TSLA) is a relatively new company with a new business model. It has a host of different revenue streams: vehicle sales, licensing technology, selling carbon credits to other manufacturers. And to boot, it doesn’t have the legacy workforce costs both Ford and GM do.