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Tesla Generates Small Sales, Big Buzz Without Paid Ads

But Can Electric-Car Company Overcome DeLorean Flashbacks?

By Published on . 3

Credit: Tesla

Tesla Motors has no advertising, no ad agency, no CMO, no dealer network. And that's no problem.

The electric-vehicle company, co-founded by tech billionaire Elon Musk, is the buzz of the auto industry and Wall Street, where its stock has tripled so far this year. But some analysts warn that shares of Tesla, which recently produced its first quarterly profit, are a bubble waiting to burst.

The Palo Alto, Calif., company is breaking all the rules of automotive marketing, eschewing dealers in favor of selling through "stores" in upscale shopping malls and the internet.

Tesla has 35 stores across the U.S., Europe and Asia and plans to expand to 50 over the next few years, according to an SEC filing.

At Tesla's store in the swanky Mall at Short Hills in New Jersey, Model S owner Connie Charney says people lean out their car windows to take pictures with iPhones—as did two men in a Bentley convertible recently.

"That's how cool this car is," said Ms. Charney, a greeting-card company owner from Morristown, N.J. "You feel like you're part of something bigger, a new age of motor vehicles. ... Elon Musk is my hero."

Proselytizing customers is one way Mr. Musk, the South African entrepreneur behind SpaceX and PayPal, is building an auto brand whose reputation exceeds the 10,000 cars it's sold in 10 years of research and production.

The high-tech stores provide a setting for customers to ask questions without high-pressure sales tactics, said spokeswoman Alexis Georgeson.

Tesla has no plans to hire agencies or run ads in the near future, she said. The in-house marketing team has only seven staffers and an internal team runs the website, where customers order directly. By contrast, Nissan spent $25 million advertising its Leaf EV in 2012, according to Kantar Media.

"Right now, the stores are our advertising. We're very confident we can sell 20,000-plus cars a year—without paid advertising," Ms. Georgeson said. "It may be something we'll do years down the road. But it's certainly not something we feel is crucial for sales right now."

According to its latest 10-Q, Tesla spent $55 million on R&D during the first quarter, but only $47 million on selling, general and administrative expenses, which include marketing. Still, the company warned that it may "incur substantial marketing costs" through the use of "traditional media" in the future rather than relying on its current "unconventional" strategies.

As with Apple, fascinated media do much of Tesla's PR, said Jeremy Anwyl, vice chairman of auto consultancy Edmunds.com. The company received positive coverage for posting its first quarterly profit, repaying a $465 million loan from the U.S. Energy Department and, recently, announcing an expansion of its Supercharger network that will allow owners to drive from New York to Los Angeles.

Above all, it has Mr. Musk, who inspired the Tony Stark character in "Iron Man" and has more than 227,000 Twitter followers.

"They're selling very few cars when you think about it -- but they are getting an awful lot of buzz," Mr. Anwyl said. "You have to credit [Musk], who's very Steve Jobs-like in how he deals with the media. A lot of the attention is not generated through what we consider traditional advertising. It's really through social media."

But Tesla still has hurdles. It's legally battling dealer associations in several states for the right to sell cars directly to consumers. The Model S starts at $69,000 and goes to $120,000, giving some consumers sticker shock.

Retired New York surgeon Alan Sherman is the kind of deep-pocketed customer that Tesla wants. But he's wary of flash-in-the-pan auto brands.

When Mr. Sherman strolls into the store, he asks if Tesla's connected to failing electric-car company Fisker. "It reminds me of the DeLorean," he said. "Would I buy this? I could. But I'd think three times before I do it."

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