How To Profit From A Disrupted Automotive Industry

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Sep 10th, 2012 | By | Category: Featured, Investing Strategies, Investor Education, Options, Technology

The process of buying a new car or truck is an experience you probably know and rarely enjoy.

You’ve got to play the sitting and waiting game for hours on end. Push through back-and-forth negotiations (not just with salesmen but also with their managers). Fill out paperwork… and stay braced because when you think it’s over, they’ll throw add-on deals at you.

You may never have imagined that it could be any different. But the wheels are already in motion for a radical change in how automotive dealerships are geared.

For the first time ever, the customer experience of buying a new car could be near to buying a new computer.

More importantly, what I’m about to tell you could disrupt the entire automotive industry.

That means there are new profit opportunities for those willing to ride the trend.

The automaker leading the way is Tesla Motors Inc (NASDAQ:TSLA)

You may have heard of their CEO, PayPal cofounder Elon Musk.

We’ve covered his involvement in the joint-venture of the SpaceX Dragon shuttle launch throughout our tech letters.

Now his vision for Tesla Motors includes a way to short-circuit automotive dealers by selling cars directly to consumers over the Internet.

That might sound crazy.

But stop and think about it: car dealers don’t currently share with other commonplace products the same standard of affordable prices, selective inventory, and convenient delivery that comes with selling online.

Once your car is built, it would be delivered right to your door, unless you want to pick it up at the factory in Fremont, California. While that means you don’t really need to go to a physical store, Tesla is opening showrooms in strategically chosen locations… ones as seemingly unorthodox as your major shopping mall.

“We are deliberately trying to engage with people when they are not thinking about buying a car,” says George Blankenship, Tesla’s sales chief. “That’s the best way to educate people about how electric cars work, how much they cost to operate and what Tesla has to offer when they eventually go car shopping”.

If you haven’t seen any of the stores yet, you will. And they’ll be tough to miss, in the same way that the iconic Apple stores with their dramatic yet simple design grab the attention of those who pass by. This is no accident: Blankenship previously spent years building Apple stores.

Once you walk into a Tesla store to buy a car, you’ll then be escorted to the company’s website to fill out forms, which Blankenship estimates can be accomplished in half an hour.

Aside from a sales perspective, this different approach is a brilliant move from an operations standpoint. By selling cars directly, they eliminate part of the auto industry’s massive overhead costs in inventory.

Just think: no high pressure from salesmen itching to get their inventory off the lot. Just place an order with the exact specs you want, and the rest follows as you would hope to expect.

If Tesla’s history is any indication, the larger automotive players will try to follow by example.

Roughly four years after the Tesla Roadster became the United States first high-speed electric car, a wave of more affordable plug-in cars went into development. Since Tesla is based in California, which has the largest auto market out of any other state in the nation, the worst air quality, and the strictest emissions rules, it’s perfectly positioned.

This also has its legal advantages, allowing Tesla to avoid the purview of other states’ restrictions… an obstacle that has until now prevented automakers from going the route of Apple of Amazon. This is why it’s important for them to merely showcase merchandise in other states, but officially sell it in a centralized fashion from California.

In short, Tesla is about to have an intimate command of the entire customer experience in an industry that lacks such agility. They have a powerful combination of factors driving this disruptive trend, and their product is a new class of automobiles. Not only is the stock worth putting on your watch list, but as the company grows, its performance will influence that of its competitors.


Josh Grasmick

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  1. Hi. Nice Article.. But if we look at the history of disruption, there is much more than new … Consider the history of the automotive industry as one example.

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