Elon Musk Explains Tesla’s Retail Strategy In Wake of Recent Lawsuits

With two lawsuits filed recently against Tesla Motors alleging violation of state laws prohibiting factory owned dealerships, the company’s chairman and CEO is attempting to set the record straight regarding Tesla’s retail business model.

Elon Musk offered these views via an enthusiast blog post yesterday saying Tesla’s stores haven’t any provision for selling a vehicle on site. Musk said also the only thing the “Product Specialists” at Tesla stores can do is “get you to consider placing a reservation.”

As for the lawsuits, these are not the first, and issues have been brewing for a while now. Two more suits were filed Oct. 16; one in Massachusetts, one in New York.

The New York suit mirrors one in that same state from 2010 that was thrown out due to a missed statute of limitations deadline. This latest attempt is again by the Greater New York Automobile Dealers Association, along with one its dealer members.

The New York suit says Tesla violated state franchise law by opening a store in Westchester county. As was the case previously, the October suit also names the New York Department of Motor Vehicles as a defendant for granting Tesla the dealership license.

Similarly, on the same date, the Massachusetts State Automobile Dealers Association and some of its dealers filed suit, seeking to shut down Tesla’s store in the Boston area.

According to the National Automobile Dealers Association (NADA), 48 states have laws prohibiting or restricting factory owned dealerships.

Citing the obvious differences between an all-electric vehicle and a car with a traditional internal combustion engine, as well as the greater public’s lack of knowledge of EVs, Musk explained that Tesla is at an immediate disadvantage in a traditional car dealership setting:

santanarow

“Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars. It is impossible for them to explain the advantages of going electric without simultaneously undermining their traditional business. This would leave the electric car without a fair opportunity to make its case to an unfamiliar public.”

According to Musk, Tesla’s company owned stores serve more as a venue to educate consumers about Tesla vehicles, as well as electric vehicles in general, saying Product Specialists and the company’s stores are nothing like a traditional dealer:

“They are not on commission and they will never pressure you to buy a car … Our stores are designed to be informative and interactive in a delightful way and are simply unlike the traditional dealership with several hundred cars in inventory that a commissioned salesperson is tasked with selling. Our technology is different, our car is different, and, as a result, our stores are intentionally different.”

Robert O’Koniewski, executive vice president of the Massachusetts dealer association, isn’t buying Musk’s rationale.

“They claim they’re operating under the guise of a nonsales showroom, and we call that out as an outright scam,” he said in a report by Automotive News.

losangelesservice

But in Musk’s expressed view, auto consumers are a hard nut to crack, at least for now, when shopping through the usual channels:

“By the time most people decide to head to their local dealer, they have already pretty much decided what car they want to buy, which is usually the same make as their old car. At that point it is largely just a matter of negotiating with the dealer on price. Tesla, as a new carmaker, would therefore rarely have the opportunity to educate potential customers about Model S if we were positioned in typical auto dealer locations.

That is why we are deliberately positioning our store and gallery locations in high foot traffic, high visibility retail venues, like malls and shopping streets that people regularly visit in a relatively open-minded buying mood. This allows us to interact with potential customers and have them learn about our cars from Tesla Product Specialists before they have decided which new car to buy.”

washingtondc

Part of the dealer associations’ concerns stem from the idea that a manufacturer has the capital to outspend dealers in the areas of marketing and advertising, creating an unfair playing field for franchised dealers. However, Musk highlighted a technicality about franchise laws, saying that Tesla hasn’t violated such laws because it hasn’t granted a single franchise:

“Automotive franchise laws were put in place decades ago to prevent a manufacturer from unfairly opening stores in direct competition with an existing franchise dealer that had already invested time, money and effort to open and promote their business. That would, of course, be wrong, but Tesla does not have this issue. We have granted no franchises anywhere in the world that will be harmed by us opening stores.”

Musk added to his defense of Tesla’s business model by downplaying plans to deploy company stores in light of intentions to open more service centers, even in places where no Tesla retail locations exist. The idea here, according to Musk, is to emphasize customer service over sales.

The company currently operates nine service centers, but by year’s end Musk says 26 centers will exist, putting 85 percent of Model S reservation holders within 50 miles of a service center and 92 percent within 100 miles.

fashionisland

Growing a network of retail locations if not outright dealerships is of obvious benefit to Tesla, however, and it was implied motives deeper than merely ensuring everyone plays by state franchise rules may lay behind the New York and Massachusetts associations’ lawsuits.

Tesla believes the suits “are starkly contrary to the spirit and the letter of the law,” Musk said. “This is supported by the nature of the plaintiffs, where one is a Fisker dealer and the other is an auto group that has repeatedly demanded that it be granted a Tesla franchise. They will have considerable difficulty explaining to the court why Tesla opening a store in Boston is somehow contrary to the best interests of fair commerce or the public.”

Hybridcars.com is looking into questions surrounding the legal confrontation, and will follow up as further details become available.

Tesla Enthusiasts Blog, Automotive News


  • Nelson Garcia

    Tesla could let any dealer sell their vehicles at a flat commission provided that each dealership builds supercharging stations and allow Tesla or other compatible vehicles to recharge for free.

  • AP

    There’s no way the NADA will let this survive. The precedent it would set would put most dealerships out of business, and state laws vigorously defend their franchises.

    Not sayin’ that “direct sales” from the manufacturer would be a bad thing. As a GM employee, I’d say the ability to control the interface with the customer would be great. But there’s too much inertia in the current system.

    Good luck, Elon.

  • Lad

    Come on Elon, set up a dealer company under control of TMS and have them man the stores. All it takes is just a loop around the law. It’s the Republican way around Democrat laws.

  • Volume Van

    Since EVs dont have any pollution, they can even be sold in Malls.
    Clean Technology.

  • Volume Van

    Since EVs dont have any pollution, they can even be sold in Malls.
    Clean Technology.

  • SPIKE

    Let’s hope Tesla wins these lawsuits opening up the legal framework for major auto makers to sell their EVs directly via the Internet. As Elon pointed out, auto dealers have so very little incentive to sell EVs alongside ICEs.

  • Mr. Fusion

    This is the auto industry trying to snuff out advanced innovation through bureaucratic red tape, just like it did with the Tucker.

  • Fred Flinstone

    Wow, Sounds like the NADA is simply a legal mafia type organization. Apple, Amazon, and almost every other company in the U.S. can sell factory direct, but not the Automakers. What a Sham. I hope this goes to the Supreme Court and NADA gets a little of what we call “poetic justice”.

  • Ludus

    Tesla should push a challenge in the federal courts to strike down all the state laws mandating local dealers as a violation of the “dormant” comerce clause. The federal government has a constitutional basic authority to regulate interstate commerce that has been held to extend to blocking the states from hindering interstate commerce even if there is no explicit federal act that applies. The auto biz is as clear an example of a fundamentally interstate business as there is.

    Hey Elon…I bet you’d get some powerful allies backing an effort to strike down all those old clearly anti-competitive state laws.

  • kimberlyjoseph

    I must say a very well compiled post on the important legal, financial and operational preparations that a car wash startup needs to take before it launches. Once start-ups do get finished with all these activities, there is another big challenge waiting for them and that is to get noticed, get the word out to gain visibility, and win clients and retain them.

    Ask any successful business startup and they will tell you, the first stride towards success starts with creating a corporate identity – knowing your target audience very well and then composing a message that speaks uniquely to them. And the first creation of that attempt is almost always a professional logo.
    Displaying your logo, company name, message (tagline) and contact information near a busy road, lawn signs, on your car window decals or door, business card and flyers will quickly introduce your business to targeted customers for a very small investment. Exhibiting the logo on all forms of signage will facilitate the community to remember the service you provide.

    Having a good logo is essential, especially when using it on signs. Speaking of good logos, click below link to view few eye catching Car dealer logo design ideas I found during the research for writing a blog post for a client.

    http://www.logodesignconsultant.com/logo_design_gallery/Car-logo.html

    I am in no way endorsing or promoting the website but it is quite attractive because of the colors it has used in car business logos. Also, the company has categorized the car wash logos according to the genres of the business.

  • baldwinbarclay20

    Hybrid automobiles are considered as the car of the future. It really is in a position to appropriately conserve fuel and in the comparable time, it only generates small levels of poisonous fumes. Because of these benefits, hybrid vehicles are now rising in popularity every single day.
    graines de cannabis

  • timrobert90

    Hybrid cars and trucks have two engines for it to successfully conserve fuel consumption. It has the standard gasoline motor and what’s more, it has an electrical motor and batteries. The two engines deliver the results together with a purpose to cut fuel usage. Using this type of systems, you certainly will be able to cut fuel application by greater than half. ustensiles de cuisine