Tesla and Product-Market Fit

Though not on purpose, Tesla has been on my mind a lot lately. Professionally, I’ve been researching self-driving cars and that involves reading up on Tesla (and Waymo and several others). The new book Autonomy is great by the way. And then personally, I just got a new car and thus spent the past several weeks going through the car buying process.

I hate everything about the car buying process and I don’t think I’m alone in that. Every friend I’ve talked to recently about buying cars has said the same thing. I started by entering my information into a few automaker websites to learn more. I immediately regretted that decision. The next few days I was bombarded by calls, texts and emails from salespeople at nearby dealerships.

This also turned out to be a bad idea because when I request information on one of their websites, they assign a salesperson to me. One dealership I went to would not help me until the salesperson who was assigned to me was available. I had to wait around, while other employees could have been helping me, for my assigned salesperson to be free.

At another dealership, a salesperson told me he was not allowed to talk numbers on any car unless I test drove it (even after I had already driven the same model!). This resulted in me literally driving one car ten feet forward and then backing it into the same spot. Test drive over.

Those crappy customer service experiences are a result of dealerships not putting the customer first. Quite the opposite actually. Auto salesmen are incentivized to sell cars for as much as possible. As a result of this, there is nothing about a traditional car buying experience that makes the customer think their best interests are being taken care of. Instead, it’s an active battle to try and not get completely screwed over.

On top of that, car dealerships are just depressing places to be at. I feel like I travel back in time thirty years every time I step inside one. And the car salesman stereotype exists for a reason. Every dealership I visited tried a variety of sleazy psychological tricks to get me to buy a car before leaving (what a coincidence this $1,000 offer expires today – how could I be so lucky! I bet there won’t be another offer tomorrow…).

Walking into a Tesla store is the complete opposite. The stores are bright, white, have futuristic-looking Powerwalls and solar panels hanging up, and the stores are staffed by younger, well-dressed, more attractive employees. I think Tesla made a smart decision to not pay their salespeople commission. I’ve been in their stores several times and have had nothing but positive experiences with zero of the typical car salesman pressure. A friend of mine made the point that Tesla can get away with not having a high-pressure sales team because consumer demand for Teslas is so high. On the other hand, Honda dealerships couldn’t survive doing that because their cars are interchangeable with five other brands.

He’s probably right. I was in the market for a non-high-end SUV crossover and every model I looked at was basically the same. I bet most consumers, if the logos were removed and they were sat in the driver’s seat, couldn’t tell the difference between the vast majority of cars. But not Tesla. Whether you like their interior or not, no one can deny they are extremely unique and, in my opinion, very futuristic. Even high-end BMWs and Mercedes’ still feel like a nicer, improved upon version of what the automakers have been putting out for decades. Teslas are completely different.

I don’t know of any company that has a larger dichotomy of opinion between Wall Street and the average consumer. Some of that is justified of course: consumers don’t think about Tesla’s balance sheet and investors do. Nonetheless, despite all the drama around Elon this year, anytime I witness Tesla being discussed among non-investors the opinions are almost universally positive. I’ve met numerous Tesla owners who have had issues with their cars, yet are still fiercely loyal to the brand.

This led me to believe that Tesla has absolutely nailed their product-market fit better than most. Everything from the long-range electric vehicle and futuristic interior to the better buying experience and better owning experience (over-the-air updates means Teslas actually get better over time) and, finally, to supporting a company with a grand vision of saving the planet.

“Whenever you see a successful startup, you see one that has reached product/market fit — and usually along the way screwed up all kinds of other things, from channel model to pipeline development strategy to marketing plan to press relations to compensation policies to the CEO sleeping with the venture capitalist. And the startup is still successful.” – Marc Andresseen

When a company achieves product-market fit, they can do a lot of things wrong in the traditional sense and it doesn’t matter because the consumers love the product so much. These companies are given lots of leeway by consumers to improve and iterate on those features that are lacking.

Tesla cars get hated on for a variety of legitimate reasons (Model X wing doors or Model 3 screen issues and door frame alignment) that haven’t affected consumer demand as much as investors expected. Consumers want electric, futuristic cars and they want to help save the planet—and they’re willing to accept some imperfections to get what they want.

Of course, none of the above factors in Tesla’s balance sheet or Elon’s erratic behavior. That’s not the point of this post and I don’t have a dog in the Tesla fight either way. I’m sure it’s happened, but I haven’t been able to think of a consumer company that has gone bankrupt while their products are so beloved and in high demand. I don’t mean something like Blackberry where their product was loved but got beaten by something new and better. I mean a company at the peak of its consumer interest. It seems like if a company nails product-market fit and has that huge demand, they’ll almost always be able to find more funding if necessary to survive. We’ll see.

As of this writing, Wiedower Capital does not own shares in TSLA. This is subject to change.

One thought on “Tesla and Product-Market Fit

  1. I’m late to the game here, but as usual, this is awesome.

    Ryan Berber Investment Associate *Nicoya Capital* 512.657.5576

    On Tue, Sep 18, 2018 at 10:12 AM Egregiously Cheap wrote:

    > Travis Wiedower posted: “Though not on purpose, Tesla has been on my mind > a lot lately. Professionally, I’ve been researching self-driving cars and > that involves reading up on Tesla (and Waymo and several others). The new > book Autonomy is great by the way. And then personally, I ” >

    Like

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