Let’s make a deal: Tesla and the traditional sales model

Let’s make a deal: Tesla and the traditional sales model

The state of New Jersey recently decided Tesla cannot sell their electric vehicles unless they set up a traditional dealership. New Jersey is now the fifth state limiting Tesla sales in this manner, joining Arizona, Texas, Maryland and Virginia. These states have either enacted legislation or are considering reaffirming existing legislation limiting car sales through dealerships only.

Tesla’s business model is built upon custom-order online sales, using “product galleries” in a few key cities to showcase their cars and allow for test drives. Tesla is rapidly opening service centers throughout the U.S., though, and they offer “Service Ranger” house calls for all customers, no matter how far away they live from a service center.

Tesla cars are generally more expensive than similar options offered by better-recognized manufacturers, but their higher mileage range per charge is appealing to a wide array of car buyers. Early research indicated rich white men were the main buyers for electric vehicles, but Nissan’s 2013 study on the Leaf seemed to indicate that electric vehicles are getting closer to the mainstream, as its buyer base is broadening to include a wider range of demographics. If Tesla had to set up sprawling dealerships with large inventories and service centers, my guess is that their pricing would increase dramatically – making them even less competitive in a broader market.

State legislatures should be careful not to slow entrepreneurial momentum and the adoption of sustainable products under the premise of consumer protection. The argument to protect the auto buyer seems questionable in light of recent safety issues with mainstream manufacturers. In the last few weeks, GM has recalled 1.5 million vehicles to fix problems with airbags, and Toyota has been hit with a $1.2 billion fine for concealing safety defects. While Tesla at some point may have a recall as well, auto dealers in these instances provided no better or worse consumer protection than Tesla likely would.

So, what is the real concern? Perhaps auto dealerships are worried about how well the Tesla may sell against their stock of electric vehicles. Nissan is conducting market research with Tesla owners. And Tesla is expected to release a car priced at around $40,000 in a few years that would compete with more traditional models.

Or perhaps states want a piece of the pie. Interestingly, both Texas and Arizona are in the running for the $5 billion Tesla Gigafactory, which would employ 6,500 workers. It will certainly be telling if we see a sudden shift in dealership legislation in these states.

Sustainable products may not always easily fit into traditional sales channels, especially since early adopters of innovative products, by nature, are less conventional. But as electric vehicles continue their move toward the mainstream, Tesla may want to consider an innovative dealership alternative that at least resembles the more traditional approach to car sales.

If their goal is mainstream adoption, it may require dealerships for middle-American consumers who want face-to-face interaction and more localized service. These more traditional buyers may require the security/comfort of a more traditional dealership experience.

But states may want to revise their auto dealership laws if for no other reason than lost tax revenues. It seems a deal might be in order.

About the Author

Jim Lyza

Jim is a former contributor to Shelton Insights.

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