Tesla (NASDAQ:TSLA) has been building a network of infrastructure that consists of supercharger stations, mobile service vehicles and stores and services locations. These properties represent some of Tesla’s most important assets. By studying the growth of these properties, investors can reasonably figure out what Tesla has been up to in terms of business strategy and investors can answer question such as why one asset class is growing faster than the other.
For instance, Tesla has been expanding its mobile service fleet at a much faster rate than stores and service location opening in recent years.
Most investors want to see these assets growing at a meaningful rate as they represent Tesla’s competitive advantages over its competitors. Any sign of slowing or stagnant growth in one of these assets may point to a shift in business strategy or just poor business environment that is eating into Tesla’s sales.
To recap, here is a list of the assets that make up Tesla’s crucial infrastructure:
- Supercharger stations
- Mobile service vehicles/fleets
- Stores and service locations
Tesla’s Supercharger Stations
Average quarterly growth rate of Supercharger Stations for all quarters in the chart => 7.3%
Tesla has built a network of charging stations around the world referred to as Supercharger network. These Supercharger stations are industrial grade high speed charger designed to recharge a Tesla electric vehicle at a significant speed faster than other charging options.
For instance, Tesla Superchargers can replenish half the battery in as little as 20 minutes. Besides, Tesla has a growing network of Destination Charging partners – including hotels, restaurants, resorts, and Airbnb locations. The use of Supercharger network is either free or require a small fee.
In order to remove the general perception that electric vehicles are typically having limited travel distance, the Supercharger network is built to provide fast charging to enable long-distance travel and to encourage the broad adoption of electric vehicles.
A typical Supercharger station is equipped with six to twenty electric outlets and is strategically located along well-traveled routes to allow electric vehicles owners the ability to enjoy long distance travel with convenience and minimal stops.
Based on the chart above, Tesla Supercharger stations have been growing at a substantial rate. Over the 3-year period shown in the chart, Tesla has more than doubled the number of Supercharger stations worldwide, growing from only 700 stations in 3Q16 to nearly 2000 stations by 1Q20.
Besides, we can see that Tesla has been posting positive year over year and sequential growth rates of Supercharger stations throughout all quarterly results in the chart. In other words, Tesla has been expanding this important asset not only year over year but also from quarter to quarter, suggesting that the expansion of a network of Supercharger stations is crucial for the adoption of electric vehicles.
This unique assets are hard to replicate and require huge upfront capital outlay. By the time Tesla has built out a huge network of Supercharger stations, imagine every single existing gasoline station being replaced by this network of Supercharger stations, the company will have immerse competitive advantages over its competitors.
Tesla’s Mobile Service Fleet
Average quarterly growth rate of Mobile Service fleet for all quarters in the chart => 21.4%
Tesla launched the Mobile Service fleet to create the best car ownership experience for its customers. The biggest advantage of the Mobile Service fleet is that Tesla customers are not required to come to Tesla service centers to service their vehicles. In North America alone, Mobile Service is now completing a substantial number of all service jobs, allowing its customers to never have to leave their homes or offices to get their cars serviced.
According to Tesla, Mobile Service fleet has achieved a great deal of customer satisfaction because of its convenience and lower cost of servicing compared to its service centers. Tesla will continue to increase its service capacity especially during the period of Model 3 and Model Y ramp up.
As the chart above shows, Mobile Service fleet has increased tremendously from only 100 vehicles in 2Q17 to over 750 vehicles in 1Q20, representing a growth rate of as much as 700% over the 3-year period. Similarly, the growth of Mobile Service fleet has been unstoppable year over year and quarter over quarter, suggesting that this infrastructure is indispensable to Tesla’s expansion in the all-electric automotive industry.
Again, the incredible growth of another valuable asset will provide Tesla an edge over its competitors as these are hard to replicate properties that require huge upfront investment.
Tesla’s Stores and Service Locations Worldwide
Average quarterly growth rate of stores and service locations for all quarters in the chart => 4%
Tesla opens its stores and service locations in highly visible, premium outlets in major metropolitan markets. All these stores are owned by Tesla. There are no third-party vendors involved in Tesla sales and marketing. The reason is that the company wants to have better control of cost of inventory, manage warranty services and pricing, maintain and strengthen the Tesla brand and more importantly, having faster customer feedback.
According to Tesla, opening a new store and service center in a new geographic area boost demand for its products. Tesla is rapidly increasing its retail footprint by having more stores and service outlets. In addition, Tesla combines these facilities with sales and personnel in service centers and refer them as “Service Plus” locations.
Despite the importance of opening new stores and service locations, the average quarterly growth rate has only been 4% for the past 15 quarters shown in the chart above. Tesla may have slowed down in recent years in opening new stores and service locations as the services provided by these stores can possibly overlap with the one provided by Mobile Service fleet.
Besides, maintaining new stores and services locations requires huge working capital and take resources out of the company. Tesla has been quite conservative in preserving capital and has switched to online booking in recent years.
As such, the growth rate of new stores opening has only been 4% in average as of 1Q20 due to the huge capital requirement for such venture. Tesla’s new stores and service location of 434 units reported in 1Q 2020 represents a sequential growth rate of only 1.2% which is the lowest among all the infrastructures expansion that Tesla has been carrying out.
Among the 3 valuable infrastructures, Mobile Service fleet has the highest average growth rate at 21% over the past 3 years. The second spot went to Supercharger station at an average growth rate of 7% for the past 3 years. Stores and service locations openings has the slowest average growth rate of only 4% for the past 3 years.
One notable explanation for Mobile Service fleet having the highest growth rate is that it gives the highest return on invested capital. For perspective, Mobile Service fleet is easier to maintain and requires less capital to operate but covers a greater area compared to a store and services center which is usually fixed to a certain location.
Most importantly, according to Tesla, Mobile Service fleet gives better customer satisfaction in terms of flexibility and cost.
For this reason, Tesla has taken some of the physical store sales to online ordering as discussed in this article: Tesla will close most of its stores and only sell cars online, which means that Tesla will most likely further slow down the opening of physical stores in future.
Nevertheless, Tesla infrastructure expansion is crucial for the future growth of the company. The Supercharging stations, Mobile Service vehicles and stores and service locations are all important assets that Tesla can’t do without.
References and Credits
1. All numbers in the charts in this article were obtained and referenced from Tesla Quarterly and Annual Reports.
2. Tesla supercharger detailed info: Tesla charging infrastructure.
3. Featured images in this article are used under creative commons license and sourced from the following websites: Ed Uthman
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