Tesla and the Fight for Direct Auto Sales

Tesla Model S
Image: Wikipedia

The Tesla S is the electric vehicle that threatens to topple the old EV paradigm, the notion that an electric vehicle has to be ugly, slow, and only appeal to the green fringe of society.  In fact, arguably it’s already accomplished that toppling.  It is now the most popular car in many of the wealthiest neighborhoods in the nation, showing that people with the necessary means will indeed spend money on and drive electric vehicles, and it is, almost unarguably, one sweet and handsome ride. Also, let’s not forget it’s performance:

Tesla S Model Battery 0-60 MPH Top Speed EPA Combined MPG
Base 60 kWh 5.9 seconds 120 MPH 95 MPGe
Signature 85 kWh 5.4 seconds 125 MPH 89 MPGe
Performance 85 kWh 4.2 seconds 130 MPH 89 MPGe

Quite the results from an electric car. No wonder it won the 2013 Car of the Year Award from both Motor Trend and Automobile Magazine, and was given the highest score by Consumer Reports…ever!

But given the man behind the company, these results might not be so surprising.  Elon Musk, known as one of the most “disruptive” entrepreneurs of the last decade, co-founder of PayPal and mover-shaker in both aerospace and solar power as well. Perhaps not as headline-worthy, but just as industry-shaking, is the Tesla’s–and Musk’s–push for direct auto sales, circumventing traditional dealerships to sell consumers cars through their own Tesla showrooms.

Dealer Pushback

To even this industry observer, let alone the run-of-the-mill consumer, it would seem logical, fair, and unsurprising that Teslas would be sold at Tesla dealerships.  However, automobile dealer associations across the nation are lobbying hard against the practice, claiming that direct auto sales are in direct violation of franchise rules, sidestepping dealers entirely. So far, the following states have attempted to restrict and/or ban Tesla direct sales:

  • New York
  • Minnesota
  • Georgia
  • Texas
  • Virginia
  • Arizona
  • Ohio
  • Missouri

…and the list keeps growing.  Some states, like Texas, have been successful in this endeavor. In the Lone Star state, Tesla can have galleries (like showrooms), but not only is the company prohibited from selling cars through these facilities, company employees aren’t even allowed to tell prospective buyers how they might purchase one.

Dealer Logic

It shouldn’t be surprising that dealers are pushing back against Tesla’s direct sales. Though Tesla itself may not be that great a threat, the precedent set by the company could open the floodgates for retailers of all kinds, particularly Chinese carmakers. What’s more, franchise laws are important for protecting the financial investment of dealers who have so much capital tied up in vehicle inventory and property. Dealer advocates have also stressed than independent dealer networks enable consumers to compare cars, and serve as pro-consumer intermediaries between their customers and the manufacturers. These arguments, while not necessarily invalid by any means, do seem to lack a certain amount of moral weight or force.

Consumer Logic

Most consumers we’ve spoken with on the subject are actually confused as to why Tesla would not be allowed to sell their cars directly to consumers. This is especially true of consumers who have felt taken advantage of in the auto-buying process in the past, and wonder why they should have to pay a middleman for a product the manufacturer would like to sell directly.