Elon Musk held a call with Tesla employees this week in which he emphasized that Tesla needs to move cars out of the factory faster in order to fix the automaker’s logistic problems.
He made several comparisons to Amazon.
Tesla is not like other automakers in many ways.
One of those ways is that Tesla owns and operates all its own stores, service centers, and delivery centers without doing business with third-party franchise dealerships, like most other automakers.
This business model results in several obvious differences, but one of the least appreciated ones is that Tesla owns and is responsible for all its vehicles all the way until the customer takes delivery.
It creates more complex logistics problems for Tesla than other automakers who simply sell to dealerships who keep a lot of inventory on their lots.
Currently, Tesla’s custom-ordered vehicles often don’t move from the factory until they schedule a delivery date with the customer, which is not always as easy as you would think.
According to people on the call, Musk told employees this week that starting next quarter, Tesla will put the vehicles in transit right away and deliver them to local delivery centers for the customers to pick them up at their convenience.
Tesla is spending a lot of manhours trying to coordinate customer deliveries and it is backing up inventory at the Fremont factory.
Musk wants a constant flow of vehicles going to the end destinations and compare the logistics to Amazon.
The CEO said:
“Amazon would go bankrupt if they would have to wait for customers to be ready to take delivery before shipping.”
Interestingly, it’s also a financial problem since Tesla is investing all the money into building the vehicles and doesn’t get paid until the customer takes delivery.
Therefore, every day that the car is built and not in the hands of the customer, it’s a day that Tesla is several tens of thousands of dollars in the hole.
Musk has been emphasizing that delivering the vehicles faster to customers would greatly improve Tesla’s financials.
On a bigger scale, Tesla having production facilities closer to its customers basez would also have a big impact on reducing transit times.
That’s exactly what Tesla is trying to do with Gigafactory 3 in China and the company claims to be moving forward with a factory in Europe.
According to people on the call, Elon was adamant about fixing Tesla’s logistics issues and he talked about Amazon as a good example of solid logistics.
It was a bold move for Tesla to build its sales, service, and distribution network around company-owned locations instead of franchise dealerships.
I think it paid off in many ways despite the fact that there are still some issues, including some sale bans in a few states, but I like that Tesla is still finding ways to optimize the business model like this and make selling electric vehicles a better and more profitable business in the long run.
Ultimately, it should be easier for customers who will have more availability to just go pick up their cars at Tesla delivery centers.
Amazon is an interesting comparison. It’s definitely an efficient company when it comes to logistics, but it is especially interesting with the context that Amazon has been itself looking into selling cars.
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