At Tesla, no dealers? No problem
Renegade retailing: Factory stores, service makes house calls
Photo credit: LINDSAY CHAPPELL
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The Silicon Valley electric car maker remains largely unknown to U.S. consumers. Electric drive technology is still a dark art to most customers. Tesla's sole existing product, the $109,000 electric two-seat Roadster, is too expensive for all but a sliver of the market. And the company's retail model, relying on Internet orders and factory-owned stores with no service shops, will face obstacles in states that restrict factory-direct auto sales.
But that list of hurdles was what attracted Dustin Krause who quit his job as a BMW-Mini salesman to jump to Tesla.
"Where else would I get an opportunity to work for a company that's out to shake things up and challenge all the rules of the business?" asks Krause, standing in the fashionably spartan new showroom he manages in Boulder.
Krause, an articulate 25-year-old in blue jeans and a Tesla baseball cap, left his job in Chicago last year to become regional sales manager overseeing two of Tesla's newest stores -- in Chicago and Boulder. They are two of only eight U.S. stores so far. Others are in Los Angeles, Menlo Park and Newport Beach, Calif.; Miami; New York; and Seattle. Tesla has five others in Europe.
At 6 foot 5, Krause barely squeezes into the cockpit of a convertible Tesla Roadster. But beneath the bill of his cap is a visible spark in his eye for all things Tesla.
"There is a pool of people out there who are looking for something new and different in a car," Krause says. "The way we operate is different from what anybody else is doing. People come in off the street to look at our cars and ask questions. Young people love coming in here. They're future Tesla customers."
The retail concept behind Tesla is the brainchild of Elon Musk, Tesla's 39-year-old millionaire entrepreneur CEO. Musk hopes to dispense with traditional U.S. auto retailing practices to sell his nontraditional electric cars. In his vision, Tesla's dealerships will be more like Apple computer stores than Ford or Honda dealerships.
The small Boulder showroom -- about the size of the single-story clothing boutiques along the city's row of downtown storefronts -- has no sales lot. The garage is used for storage, not service work. The five employees are compensated through a mixture of salaries and commissions.
The home office in Palo Alto, Calif., handles service issues. A customer with a problem contacts Tesla, and a technician, called a Tesla Ranger, is dispatched from California by truck or airline to the owner's home to perform service work.
The owner pays $1 per round-trip mile for the house call. Because software figures prominently in the operation of the engineless car, some diagnostics are performed remotely using the Internet.
Servicing the current Tesla vehicle population is one thing. Since the Roadster went on sale in 2008, the company had sold just 1,063 by the time of Tesla's initial public offering in June. But will Tesla still rely on the same California-based service team, racking up airfare and hotel bills, once it enters the higher-volume family-sedan market in 2012?
"It's working for now," Krause says. "If we need to change in the future, I'm sure we will."
New problem: State laws
That crossroad presents a challenge to Tesla. For the past two years, the automaker has been retailing the Roadster in negligible volume, mostly from California. Now Tesla has raised $226 million from its stock offering and secured $465 million in low-interest federal loans from the U.S. Department of Energy. That money will go largely to develop and build the electric Model S family sedan, expected to sell for around $50,000 after a $7,500 federal tax credit.
To support that shift, Tesla intends to open more stores. That expansion will both test its boutique model and bring Tesla into a new line of fire: auto trade groups and state regulators who keep watch over what car dealers can and cannot do.
"I've visited the Boulder store," says Tim Jackson, president of the Colorado Automobile Dealers Association. "It has a very fashionable feel to it. We wish them a lot of luck."
According to Tesla's June 2010 prospectus, Colorado regulators required the company to be licensed as both a manufacturer and a dealer.
Jackson says Colorado permits an automaker to open and operate a retail store, provided it has no other dealerships in the state. He thinks the intent was to help new manufacturers get started, but not to operate stores long term.
"Have we scrutinized all the issues behind what they're doing? Not really," Jackson says. "My feeling is that a manufacturer-owned store as a business model violates the spirit of the state law here.
"But not a single person is complaining about it, and it's kind of a back-burner thing for us. I imagine that if we start getting complaints from our membership, we would move it up to a front-burner thing."
The prospectus concedes that state laws in Texas prohibit a manufacturer from retailing cars there. Consequently, Tesla might be unable to sell to consumers in Texas, even over the Internet.
In July, Tesla hired retail expert George Blankenship to create and direct a stepped-up global retail strategy. The gray-bearded Blankenship, 57, designed and rolled out Apple's retail electronics stores around the country. He also headed retail real estate activity for the Gap clothing chain as it opened 250 stores a year.
Blankenship begs off of providing details about future Tesla stores, saying the strategy is still being formulated.
"We want to be in front of as many customers as possible, and we want to be there before the Model S arrives," Blankenship told Automotive News in July before flying to Tokyo to oversee a new store. "We recognize that there are some challenges out there in some states, and we plan to work around those land mines."
But he points to Boulder as "pretty close to what we want to do with our stores."
The Boulder store opened last December on Pearl Street, a street of shops and condominiums with heavy pedestrian traffic in a town dominated by the University of Colorado.
 | Dustin Krause, Tesla’s regional retail boss, says: “We’re here … to let people come in and see what electric cars are all about. But, no question, we’re also here to sell cars -- as many as we can, just like any other car dealership.” Photo credit: LINDSAY CHAPPELL |
Strolling into the 'gallery'
"We call this a gallery," Krause says, motioning around the storefront -- a renovated shop with dark concrete floors, red accent walls and modern furniture.
Three roadsters sit on display. A fourth travels around for customer test drives in nearby cities such as Denver, Fort Collins and Colorado Springs.
Erich Ziegler, the Boulder store's 37-year-old senior sales adviser, recently drove the car an hour north to Fort Collins. He used campus meeting space at Colorado State University to hold pre-arranged sales visits with potential customers.
"We go where our customers are," says Ziegler, a former management consultant with Deloitte who worked with startups during the first wave of Internet companies. "I haven't seen this kind of excitement since the dot-com era."
Krause declines to say how many Roadsters the Boulder store has sold since it opened in December.
"We are selling them," he emphasizes, including one in the past few days. "Part of our mission is educational. We're here in this kind of setting to let people come in and see what electric cars are all about.
"But, no question, we're also here to sell cars -- as many as we can, just like any other car dealership."
Customers stroll into the Boulder store just to see the Roadster they have read about. A father with two children gets a walk-around from the store's coordinator, Erin Callan. At 27, Callan has detoured from her career in architecture to work for Tesla. It's her first automotive job.
A woman from Santa Fe, N.M., 400 miles away, walks in off the sidewalk with her 16-year-old son, a smiling kid in T-shirt and sunglasses who quickly tunes out the adult conversation to ogle the car. "You need to open a store in Santa Fe," the mom tells Ziegler.
"We'd like to," Ziegler responds, handing her a product brochure.
You can reach Lindsay Chappell at lchappell@crain.com.
