24/7 Wall St. Insights
- As traditional car companies consider the drawbacks of dealer networks, the Tesla Inc. (NASDAQ: TSLA) method of fixing problems becomes increasingly attractive.
- Also: Dividend legends to hold forever.
Tesla Inc. (NASDAQ: TSLA) had a problem. Unlocked hoods could go “unnoticed,” which made them a safety hazard. The trouble affected 1.6 million cars Tesla sold in China. The fact that the hood could open while the vehicle was in motion made the warnings unsettling for owners.
However, one advantage Tesla has over most other car companies is that it can fix many problems with an over-the-air software update. The cars it sells in the United States have a similar hood problem and will likely have a similar solution.
The Tesla solution is among the advantages its vehicles have over most new cars and light trucks. And it often goes unnoticed. Among the reasons Tesla does not need dealers and hundreds of repair stations is that repairs usually do not have to be made locally. This creates a huge advantage for owners who must drive to dealers and wait for repairs. Tesla avoids the costs of supporting a large number of physical locations.
Expensive dealer networks financially trap traditional car companies, and these car companies often want to shrink them. However, dealers have long-term arrangements with car companies, which means that is not possible. As Cox Automotive recently pointed out, “Dealerships can be expensive for car companies due to their high overhead and operating costs, as well as the need to make a profit.”
As traditional car companies consider the drawbacks of dealer networks, Tesla’s method of fixing a hood latch becomes increasingly attractive.
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