Tesla’s Achilles Heel?
What is causing Tesla’s underinvestment and increasing customer dissatisfaction?
When Tesla was selling into a small, cult-like customer base, it provided a personalised customer service experience. As Tesla has become more mainstream it has suffered from increasing customer dissatisfaction. Poor customer service, quality and servicing are not random events — they derive from an unprofitable business model.
Tesla wants to make its consumers reliant on its services. This monopoly servicing model is best highlighted by Tesla’s partnership with Bios-Groep, a taxi company operating out of Schiphol Airport in Amsterdam. Bios-Groep brought 72 Model S Teslas for €5.7 million with support from the Dutch government. After Bios experienced multiple problems with the vehicles, Tesla agreed to exchange 64 of them for 70 Model X Teslas at a cost of €7.9 million. The Model Xs were delivered in November 2017 and by 2019, the number of defects repaired in the fleet had risen to 60. The defects were not trivial: dead power steering, broken driveshafts, and broken suspension wishbones. 20 of the vehicles have been removed from the fleet altogether.
Originally, Tesla provided a personalised service with a single contact point for Bios’s customer complaints. This was then downgraded to going through an anonymous “front office” with multiple complaints not being answered. Complaints are now dealt with through an online service request portal. Moreover, only two of Bios’s vehicles can be in for repair at a time. Bios is now suing Tesla for €1.3 million. In a consensus society like Holland, this is a rare step — Bios has never had to sue another supplier. To add salt to the wound, Bios has just bought 5 Audi E-Trons. Why? Because “[t]he phone will be answered there.”
Tesla’s customer service problems are a classic example of the cobra effect — incentives designed to solve a problem end up rewarding people for making it worse.
Tesla’s disruptive business model circumvents the traditional dealership model. Competition between traditional car-dealerships is fierce and money from new-sales is low. Conversely, conventional dealerships make their money from used-car sales and servicing.
The opposite is true for Tesla, it sells its cars at a premium price and loses money on its servicing operations. Losing money in this area means Tesla’s first-order incentive is to cut costs — even at the risk of displeasing customers. Naturally, Tesla would not do this if its servicing operations were subject to competition. However, Tesla doesn’t need to worry about this because it has famously made it impossible for anyone else to service their cars or obtain spare parts.
It would be reasonable to assume that Tesla would still want to provide high-quality servicing as the after-sales service is essential to its sales of new carts. But Tesla is under financial pressure — it has never made an annual profit in its 17-year history, has continuously had to raise money to cover its negative cash flow and is forced to show hope of profitability to justify its astronomical share price. Tesla is not thinking of the long-term and growth. Instead, it is pumping up its short-term financial performance and cash flow by skimping on service. The problem for Tesla owners is compounded by the fact that Tesla is a monopoly supplier of service and parts to a much greater extent than other manufacturers.