Tesla's UNFAIR Advantage??
Chris Collins and Mario break down Tesla's structural advantages: direct sales bypass dealer costs, non-unionized labor keeps overhead low, over-the-air updates and in-car purchases generate recurring revenue, and data from millions of semi-autonomous vehicles is nearly impossible for competitors to replicate.
Chapters
Tesla's unfair advantage. Mario, what's that?
I don't believe it.
You don't?
No.
Okay, let me tell you about it then. I'm glad you don't believe it. The first thing that Tesla did that was an unfair advantage is they went direct to consumer. So in North America, you, in most states, you had to sell through a dealer, right? A franchise dealer. Except for one state, New York, I know in Manhattan, a lot of the dealerships are owned by the manufacturer because they just can't afford overhead and all that. Yeah, the overhead. But for the most part, all the, the other states, I think there's one other one where you could, but you, you had to have a franchise dealer in order to sell cars. So when, what happens when Tesla can sell direct to consumer and bypass dealers? Think about it for a second. One is that margin that would go to dealers goes to them.
Keep more of the net, more of the profits.
And so the other thing is, is they don't have the overhead of flooring either. Right. So you think about dealerships, they have all this overhead. They have rent. But one thing, and if you've watched the videos on Chris Collins Inc.com explaining why fixed absorption is a house of cards, and I explained flooring in one of those videos and what it means, so if you don't understand it, go, go there to the website and opt in and watch that video. But flooring is a line of credit for wholesale cars that the dealerships pay and it's expensive. Tesla is taking an order and delivering to a car and there's, there's really no flooring as we would traditionally understand it. Right. So there's, there's no. That, that extra overhead isn't. Isn't there.
They, they also don't. Their employees aren't union.
Oh really?
No. So in the factory they've talked about going union, but as far as I know, they're not, they're not union whatsoever. So.
The next thing is software. So right now on a Tesla car.
You can go into a menu in the car and buy different things so you can buy extra performance for $2,000. Like they have an app store in there where you. And then you never have to go to a dealership to get it done. It pushes right from a satellite into the car. So nobody else is. Most of the other manufacturers, the information pushes to a satellite and they can call you and tell you you're due for service, but they literally push the programming down into the car and avoid service altogether.
Comfort of your own driveway.
Any updates Whatever it is, they just push them to the car.
I'm looking, I'm seeing that advantage, Chris. I'm seeing the advantage.
The other thing is their culture. So I'm going to go through a few of these and they're not in any certain order but their culture. So one thing that I was thinking about is Steve and I were talking about the service manager that used to work for him, but now is a service manager at Tesla. And he was saying that every two weeks Tesla sends out a new memo and they change where they're going constantly. So whatever the directive was two weeks ago is different this week. Like they're always changing. And we were talking about, we're like, well, if that happened to employees at a dealership, they would go crazy.
Right.
But you know why people at Tesla don't go crazy is because they're cutting edge and their culture has changed. They're driving change in the industry. So the employees are a part of this culture where, where change is accept it's part of the culture. Right? Yeah. So think about the difference in culture between employees at dealerships and Tesla. They feel like they're doing something cutting edge and special employees at dealerships feel like, oh, it's constantly changing. We're always getting screwed.
Right.
And you know that won't last, right?
Yeah.
And so the cultures are completely different. So they get, you know, they get away with, with more.
That's interesting.
The semis. So they're coming out with the semis in the pickup truck and their semis. When you think about what it's going to do to that industry, their, their cost per mile on those is going to be insane. And so when they start making those same thing, it's direct to consumer, no manufacturer, those margins are going to be completely theirs and they, they're going to have a huge impact on that. But the revenue from that is going to be crazy. So now understand the, the climate of electric cars. The reason why all the manufacturers are going to electric is because China is mandated by 2026, no combustion engine cars can be sold there. And it kind of counts down year over year. But the manufacturers are trying to get ahead of that. Right. Nobody has the batteries and the infrastructure to make batteries and the technology as Tesla. Tesla has the best batteries and they have batteries coming that are supposed to blow these away when everybody's just trying to get to where they're at, trying to catch up. So everybody's trying to catch up to where they are now. But the stuff they have coming blows away what they have now. So they're so far ahead in their battery technology then. No, I don't know how anybody would catch up, like. And part of the thing with electric cars is the hardest part of making them is producing the batteries. And he's got that in, in Nevada here, and then his plant in China, I believe, is going to be fed by a plant in Germany making batteries there. So. And then that's the next thing. He's got a plant in China and he is. His cost to produce in China is way lower than it is here, but he's selling them for more money over there than he is here. So his margins in China are pretty thick. And then if he runs into competition, he's got room to come down on his margins to be super competitive. But as it sits right now, his margins in China are going to be huge because he can make them for less there and he's selling them for more there. So he, he's so far ahead of everybody else with that that it's speculated that what's going to happen is he's going to end up providing batteries for the other manufacturers. He's. When, when everybody else kind of cries uncle, he's going to open the door and say, hey, I'll sell you the technology and I'll sell you the batteries. Because it might come to the point where everybody's trying to catch up and they can't. And he's so far ahead that if he makes another guard it.
Right.
Well, it would be the smart thing for some of the other manufacturers like we were talking about Chrysler and, and Peugeot and even BMW to the. To that might be better joining him instead of fighting him.
Right.
And using his technology.
You know, it's funny, like the saying goes, you keep your friends close and your enemies closer, but I don't think anybody's looking at Tesla as an enemy. They just can't see.
He's just quietly like, okay, so here's the other thing that fascinates me. And I think one of the, the biggest assets that nobody thinks about, right? So the Rembrandt in the, in the attic. Do you know, do you know what that means?
No.
Okay. The Rembrandt in the attic is if you went to buy a house in Pasadena, right? And let's say this house is, is on the market for $2 million. And you're, you're in the house and you're looking around, you're like, I want to go up and I want to see the attic. So you go up in the attic by Yourself. And all of a sudden you see that over in the corner, all dusty, is a Rembrandt that's been there forever, right? So now if. What does the house value go to if there's a Rembrandt in the attic that nobody knows about?
Depends on who's willing to pay what for it.
Let's say The Rembrandt's worth $30 million. Okay. What's the house worth?
Now.
In my eyes, I'm gonna say the same price because I want that, right? But I think if we're gonna value the house with that, we're looking at 3,500, right? 30 million. 500,000. Or you said 2 million, so 32 million.
Yeah, yeah, but it's worth a lot, we would agree, right? So you come back and somebody says, well, I'll pay 2.2 million. And then you go, well, I'll pay 2.4. And you end up buying the house for 2.5, and you have this Rembrandt in the attic. So now you made a great deal, right? So a lot of us in our businesses have a Rembrandt in the attic. For example, dealerships a lot of times don't understand that. Often their biggest asset is their database, but they don't know how to mine it or work it or understand it, or they don't have a good relationship with it. But in a lot of businesses that I've gone into over the years, there's always a Rembrandt in the attic somewhere that nobody season. It takes a fresh set of eyes like us to come in and kind of point that out. But the Rembrandt in the Addict, I think for Tesla, and purely my personal opinion, is that they've had driverless cars out there on the road collecting data for how many years now? Eight years? Something like that?
I was gonna say five. Five to eight. Yeah.
Yeah. So, well, he was collecting data before they even turned it on. So Google, Apple, everybody out there trying to develop driverless cars is eight years behind them. They've had cars out there collecting data, location data, behavior data. All of their AI that they have for driverless cars is.
Way ahead of everybody else. And that intellectual property is worth a ton, right? So as. As we proceed.
He'S. He's going to have a huge advantage there, too. So when you. When you add all of these things up, you know, you, you. We have clients that the manufacturers like, hey, I want you to spend $10 million on a building. And they're like, well, I'm barely making money. Now my new car sales are down, and you're telling me you want me to spend $10 million on a new building? No way. And then the manufacturers, and we've been on in on these conversations, too, are saying, man, I wish the dealers just weren't in the way. I wish that we could just do it and go direct to consumer. And so as the margins and the profitability for dealers go down, manufacturers appetite for going to direct to consumer goes up. And then you don't train your people and the, you know, you don't have great customer service and a great relationship with your market or your database. It, you know, it affects it. So it's a, it's a weird thing. And I don't, I don't pretend to know where it ends up, but I, I am always surprised that we are ignoring Tesla.
