Lessons learned from Tesla's approach to EV sales

The battery electric vehicle (BEV) revolution is underway. Across Europe in particular, the evidence is everywhere.

BEVs will account for more than 15 percent of European new-car sales by 2025, according to our research. This number is expected to rise to as much as 50 percent by the end of the decade.

For traditional automakers, this is a massive shift that extends far beyond the production line. It calls on them to rethink not only vehicle design and manufacturing, but also the way BEVs are sold.

In particular, automakers must be prepared to rethink how new BEV sales can be more efficient and more effective, with a razor-sharp focus on making the customer journey as fast and simple as possible.

That includes orchestrating and integrating online and offline sales channels in a way that transforms customer experience as well as cost-effectiveness.

To understand the strategic actions that automakers can take now to prepare for the expected boom in BEV sales we analyzed the sales models and practices of Tesla.
 
Tesla's approach to the customer sales journey is strikingly different from what traditional automakers have been doing. Most notable is Tesla's streamlined efficiency.

For each sale, Tesla spends only about three hours on customer-facing and administrative activities.

That's a five hours less than the average traditional automotive dealer.

Advocates of traditional sales models might expect a lower time commitment would hurt conversion rates. The opposite appears to be true. At Tesla, one in every three leads buys a car. At traditional automakers, this figure can be as low as one in 10.

Why is Tesla's sales journey so efficient?

Tesla's streamlined approach starts right at the beginning of the sales journey. The brand spends no time on first contact activities, relying on customers to register their interest themselves and book their own test drives online.

Subsequently, Tesla's direct-to-consumer sales model and zero-discounting strategy allows it to eliminate the time traditionally spent on price negotiations (given that other studies have shown that up to 81 percent of car buyers dislike price negotiations, Tesla's approach seems like a win/win).
 
The brand's simplified vehicle configuration also means that deals can be closed in a matter of minutes with a sales person, or even completed by the customer online. And it has a very different attitude to handovers, with customers taking ownership of their vehicles in regional delivery centers, often in groups with other new owners.

To enable this streamlined sales journey, Tesla has created a series of extremely lean organizational processes. That includes centralizing logistics, distribution and invoicing, as well as supporting activities like financial management, human resources, customer relationship management, and stock allocation.

Cost effectiveness … but at a price?

Unsurprisingly, the efficiency of Tesla's sales journey has a big impact on its cost of sales.

The absolute cost incurred per vehicle sold through traditional dealerships are approximately 1.6 times higher than for Tesla showrooms.

However, it's important to recognize that Tesla's ability to streamline its sales journey to this degree may be partly down to its unique situation.

The brand's explosive growth has been primarily driven by a young and/or highly enthusiastic generation of BEV buyers. These people value speed and simplicity and are comfortable interacting and transacting entirely online.

Whether this willingness to adopt self-service processes extends to other consumer demographics is an open question for the industry. And time will ultimately tell whether it leads to higher levels of customer satisfaction and loyalty among Tesla drivers over the long term.

Five key steps

That said, there is no doubt there are aspects of Tesla's approach that all automotive brands can learn from today, especially when it comes to BEV sales. Broadly speaking, there are five immediate actions to consider.

1. Look at digitalizing the point of sale. A good example would be introducing digital displays into showrooms to provide up-to-the-minute details on prices, emissions, fuel efficiency, and more.
2. Look to simplify vehicle configurators and make them independent of sales channels. Ideally, a customer should be able to configure their preferred car in ten clicks or less, with minimal (or zero) support from sales reps.
3. Think about how to leverage the loyalty of both new and existing customers. That might include building an online platform to connect potential customers with enthusiastic existing owners who can drive up conversions by acting as brand ambassadors. Similarly, look to build up customer loyalty and trust from the start by allowing new customers to return their vehicles if not totally satisfied.
4. Help customers help themselves when it comes to learning about their new purchase. Provide rich digital channels, video content, and tools that allow buyers to educate themselves about their particular vehicle.
5. Consider shifting the retail network over to a direct sales model (i.e., agency model for established automakers), under which dealers facilitate sales on an automaker's behalf and remain the key physical touchpoint with the customer. This can help streamline and integrate offline and online customer journeys, as well as open up significant cost synergies.

Unlike Tesla, traditional automakers do not have the benefit of being able to build a “greenfield” automotive sales model from scratch.

However, by understanding the advantages and disadvantages of Tesla's approach, they can adapt their existing sales models and organizations to ensure they can continue to thrive in an increasingly digitalized and BEV-focused consumer market.

There is no time to waste. Tesla is only one of many agile, customer-centric pure-electric players looking to disrupt the automotive industry. More will follow.

Traditional automakers should act now -- or risk being overtaken in the race to capture the booming BEV market.