Federal Trade Commission Directors Speaks Out In Support Of Tesla Direct Sales


Yesterday, three directors over at the Federal Trade Commission penned an article in support of Tesla’s direct sales model. We’ve reproduced the article in its entirety below.

Direct-to-consumer auto sales: It’s not just about Tesla

By: Marina Lao, Debbie Feinstein, and Francine Lafontaine | May 11, 2015

Automobiles Bureau of Competition Bureau of Economics Office of Policy Planning Competition

A fundamental principle of competition is that consumers – not regulation – should determine what they buy and how they buy it. Consumers may benefit from the ability to buy cars directly from manufacturers – whether they are shopping for luxury cars or economy vehicles. The same competition principles should apply in either case.

For several years now, there have been reports of the challenges faced by Tesla Motors in selling its luxury electric cars directly to consumers. In state after state, the company has faced legislative and litigation resistance to its business plan to sell its products without using a network of third-party dealers like other auto manufacturers. Over the past year, FTC staff have urged in a blog post and comment letters to legislators that state prohibitions against direct consumer auto sales by manufacturers should be eased. Our point: States should allow consumers to choose not only the cars they buy, but also how they buy them.

Some states that closed the door to direct manufacturer sales, like New Jersey, have recently opened the door by a crack. Legislative changes there (link is external) (and in several other states) now permit Tesla to operate a handful of direct sales outlets in the state. But the opening in the law (link is external) is a tiny one—only a few outlets, and only for Tesla Motors.

Some other states, like Michigan, have gone the other way. In October 2014, the Michigan legislature passed and the governor signed legislation that made wording changes to strengthen the statutory prohibitions on manufacturer direct sales in that state. At that time, however, the governor said “[a] healthy, open discussion can and should be had over whether the current business model in Michigan should be changed” and encouraged the legislature to engage in such debate.

A recently-introduced bill in the Michigan legislature, SB 268, provides the opportunity for this kind of debate. The bill would ease the prohibitions for a product category known as “autocycles,” and would open the door for direct consumer sales by another potential new entrant in auto manufacturing.

Elio Motors (link is external) has announced plans to manufacture an innovative low-cost, high-mileage, enclosed three-wheeled vehicle. According to announcements by the company, it plans to offer its products for a base price of $6800—less than a tenth the price (link is external) of the cheapest Tesla Model S. The firm plans to manufacture the vehicles at a facility in Shreveport, Louisiana, beginning in 2016. As of March 29, 2015, it had accepted more than 41,000 reservations for the vehicles. Like Tesla, Elio Motors does not intend to establish an independent dealer network, but rather plans to pursue a direct customer sales plan (link is external) to keep down the price of its products.

In a letter commenting on the Michigan proposal, FTC staff supports the movement to allow for direct sales to consumers—not only Tesla or Elio, but for any company that decides to use that business model to distribute its products. Blanket prohibitions on direct manufacturer sales to consumers are an anomaly within the larger economy. Most manufacturers and suppliers in other industries make decisions about how to design their distribution systems based on their own business considerations, responding to consumer demand. Many manufacturers choose some combination of direct sales and sales through independent retailers. Typically, no government intervention is needed to augment or alter these competitive dynamics—the market polices inefficient, unresponsive, or otherwise inadequate distribution practices on its own. If the government does intervene, it should adopt restrictions that are clearly linked to specific policy objectives that the legislature believes warrant deviation from the beneficial pressures of competition, and should be no broader than necessary to achieve those objectives.

Opening the door by a crack is a step in the right direction, and we urge policymakers in Michigan to take this small step. But beyond company-specific fixes lies a much larger issue: who should decide how consumers shop for products they want to buy? Protecting dealers from abuses by manufacturers does not justify a blanket prohibition like that in the current Michigan law, which extends to all vehicle manufacturers, even those like Tesla and Elio who have no interest in entering into a franchise agreement with any dealer.

Absent some legitimate public purpose, consumers would be better served if the choice of distribution method were left to motor vehicle manufacturers and the consumers to whom they sell their products.

*Marina is the Director of the Office of Policy Planning, Debbie is the Director of the Bureau of Competition, and Francine is the Director of the Bureau of Economics. The views expressed are their own, and do not necessarily reflect the opinion of the Commission or of any individual Commissioner.

Category: Tesla


30 responses to "Federal Trade Commission Directors Speaks Out In Support Of Tesla Direct Sales"
  1. CDAVIS says:

    “A fundamental principle of competition is that consumers – not regulation – should determine what they buy and how they buy it”

    So they against CAFE Standards?

    I agree with notion that direct sales should be allowed…but funny that they argue gov should not influence consumer buying choices…when gov is in every facet of commerce….

    1. philip d says:

      The CAFE standards are about far more than customer choice. It’s about reducing fleet-wide CO2 output. Very similar to using regulations for banning smoking in public retail and government buildings.

      Now if a manufacturer selling direct to customers rather than through a franchise was known to cause cancer or dramatically increase the greenhouse effect then I would be all for regulating it.

      1. CDAVIS says:

        @philip d,

        Actually CAFE was initially (and technically still is) primarily about USA Energy Security. CAFE was enacted in 1975 by the U.S. Congress as result of Arab Oil Embargo.

        I’m a big fan of USA Energy Security so I don’t have a problem with CAFE. But…CAFE does impact what cars are made & sold.

        1. MTN Ranger says:

          In some ways, CAFE has lead to more choices for consumers. Look at all of the BEVs that are sold in California that are not available anywhere else.

          1. Koz says:

            Agreed OP is mixing his anti-government metaphors. Affecting competition (path to purchase) and forcing efficiency are two different animals. Cafe does actually ensure consumers have more choices than they may have otherwise as well as affect it’s primary public good of reducing emissions as well as numerous secondary side benefits of higher fleet efficiencies.

            But…you are confusing CAFE with CARB. CARB is California based and CAFE is federal.

          2. Josh says:

            CAFE and ZEV credits are not the same thing at all. I think you may have confused CARB and CAFE.



    2. Mint says:

      At the end, they say “absent some legitimate public purpose”, and for fuel economy there are multiple: air quality, energy independence, lifetime cost of transportation, trade balance…

  2. Nelson says:

    Truth be told the power to change things is in the public’s hands and their money. What do you think would happen if people stop buying or leasing cars through dealers for two months? Would they get the message?

    NPNS! SBF!

  3. M Hovis says:

    Existing manufacturers sold their soul years ago in the US to accept dealership rights unique from any other country on this planet. This does not and should not apply to new manufacturers like Elio and Tesla.

    The argument put forth years ago by the auto dealership was proposed to cover their risk. Now you have new manufactures willing to take the risk themselves. If not for the power of money, this would have been a done deal a long time ago.

  4. Tim F. says:

    If the Michigan legislature can find it in them to carve out an exemption for one type of non-traditional automaker, they should find a way to do it for Tesla as well. I don’t want to see this bill passed without also exempting manufacturers of purely electric vehicles.

  5. philip d says:

    There’s even more to it than just denying a new startup auto manufacturer the right to sell direct.

    Even if a new start up preferred to sell through a franchise they would fail without first being able to prove their products’ demand by selling direct early on.

    What individual investor would have come forward in the early days of Tesla and agree to build a 10-20 million dollar showroom and maintenance facility to sell a new unproven automotive product that people know nothing about and may or may not be interested in?

    Elio is an even better example. Good luck in finding any existing dealers or new investors to be interested in a $7,000 small 3 wheeler. They may or may not sell, but no dealer is going to gamble or waste their time trying to sell it.

    The forced dealer model stifles automotive innovation period.

  6. Ed says:

    Too bad one of these FTC officials didn’t testify at the recent Texas House committee hearing on the direct sales bill. Not that it would have mattered to the representatives who have been bought by the auto dealer cartel, but it would have been a more interesting fight.

  7. MikeM says:


    “The views expressed . . . . . . do not necessarily reflect the opinion of the Commission or of any individual Commissioner”.

    What the heck is all this FTC pussyfooting about?
    Isn’t restraint of interstate commerce illegal? Can’t they come right out and say it?

    I have the feeling that Tesla will, one day, need to pull out the big guns and take it to court (as far as SCOTUS) and force the FTC to do it’s job.
    For now they sell all they can produce. But it will be interesting going forward – especially when their M3 production rises to the point where they absolutely need full localized storage/distribution/sales/repair (although heaven forbid it be through traditional auto dealerships).

    Watching with interest!

    1. Lensman says:


      “What the heck is all this FTC pussyfooting about?

      “Isn’t restraint of interstate commerce illegal? Can’t they come right out and say it?”

      I don’t see that individual States restricting or banning the sale of anything qualifies as “restraint of interstate commerce”. Now, if one State blocked Tesla from shipping cars through its territory to be sold in another, or imposed tariffs for doing so, that certainly would be.

      Furthermore, so far as I know, in every State you can register and license a Tesla car, even if you have to buy it in another State.

      Much as I’d like to see a uniform Federal standard imposed which would allow Tesla to freely sell its cars in all 50 States and several U.S. territories, I don’t see that Tesla has any legal standing for a Federal case. On the other hand I’m not a lawyer, so I’d be interested in seeing an opinion on this from someone who actually is.

      1. HVACman says:

        10th amendment issues would preclude the Feds from stepping into this debate. There are lots of products that have different standards for distribution and sale in different states. Alcoholic beverages for one. In some states, just a state license is required – all kinds of retail outlets can sell them, wineries/breweries can sell direct, and there is a huge private distribution network. For others states, there are only official “state liquor stores”, frequently even owned by the state. High prices, short hours, restricted selection. And within some states, there are “dry” counties that do not allow any alcohol sales.

  8. CDAVIS says:

    It’s actually working to Tesla’s net benefit (building consumer PR image wise) that a handful of states prohibit Tesla from selling direct.

    Tesla is making lemonade from the no-direct-sales lemon states.

    Tesla 7 Step Marketing Plan in No Direct Sales States:

    1.Build Tesla “Dealership” in the no-direct-sales state.

    2.Apply for Dealer License (knowing it will be denied).

    3.Tesla receives FREE news media Tesla marketing over the denied dealer license.

    4.Consumers become intrigued about the Tesla “Forbidden Fruit”.

    5.Tesla operates the store as a non-sales “Showroom” for Tesla Forbidden Fruit.

    6.Consumers visit the Tesla Showroom and order the Forbidden Fruit directly online.

    7.Repeat in next no-direct-sales state.

    This Forbidden Fruit aspect of Tesla cars promoted by traditional franchise dealers for sure benefits Tesla…makes Tesla more interesting…and desirable.

    1. CDAVIS says:

      one more thing to add…

      Every no-direct-sales state, except Texas, has a border neighboring yes-direct-sales state. That is actually significant and bodes well for Tesla.

      1. bro1999 says:

        Then after seeing an influx of out of state purchased Tesla’s registered in the no direct sale state, someone goes, “Holy crap, we’re missing out on a ton of tax money from all these missed Tesla sales…wtf??”

        1. Lensman says:

          But the State banning Tesla sales is not missing out on tax money. If you buy a car in one State but register and license it in another, you pay State sales tax where it’s registered. That may not be true everywhere, since State laws do differ, but it’s true in most cases.

          1. bro1999 says:

            Hmm…you may be right. I was thinking of CA when I typed that. In CA, you pay tax if you pick up the car in CA, regardless of where you eventually register the vehicle.

            1. Nix says:

              The trick in California is to have them deliver just over the border in another state. It doesn’t have to be delivered all the way to your home. Then you don’t have to pay the CA state taxes.

          2. Nix says:

            That’s correct. The state still collects the sales tax in most states, no matter where the car was purchased.

            But the gov’t does miss out on any income tax for employees that would work at a Tesla Store located in-state, plus property taxes, any business taxes, etc.

            I don’t know how any politician who chants “Jobs! Jobs! Jobs!” every election cycle can justify intentionally sending Tesla sales jobs out of state…..

        2. CDAVIS says:

          @Lensman is correct about sales tax.

          This is the thing I meant to convey…

          A law (very publicly sponsored/supported by traditional local car franchisees) advertising to car consumers that they need to be protected from non-traditional Tesla…protected from that forbidden fruit Tesla car…but just on the other side of the state border…those consumers don’t need protection from Tesla…that border proximity component in every no-direct-sales state (except Texas) is powerful…very helpful to Tesla.

          1. Lensman says:

            I wish the economic forces in Tesla’s favor were that powerful, but unfortunately reality doesn’t reflect that. In over half the States, Tesla still is either outright banned from direct sales, or they have very severe limitations on how many showrooms they are allowed to sell cars out of. For example, in New Jersey, Tesla is now allowed to sell cars, but at only four (4) stores in the entire state.

            A year ago, this was the count:

            States that Ban Direct Sales: 26
            States that Allow Tesla to Sell Cars: 22
            States Tesla is Fighting to Overturn Ban: 2


            1. CDAVIS says:

              Lensman said: “I wish the economic forces in Tesla’s favor were that powerful, but unfortunately reality doesn’t reflect that.”

              Lensman: Consider taking a peek through the front windshield rather than being overly focused on the review mirror. I think you will see that net-net consumer economic forces along with general public sentiment are increasingly breaking in Tesla’s favor. It’s a process…step-by-step…will take time.

  9. Lensman says:

    Great to see these FTC directors speaking out and making a strong case for allowing Tesla and other new auto makers to do direct sales. Unfortunately, the letter will likely have very little or no impact. State associations of auto dealers have far more influence on State legislatures, through lobbying.

    I’ve never seen the term “autocycle” before. I hope it catches on. It would be useful to have a term for the sort of 3-wheeled car that is legally treated as a motorcycle for purposes of licensing and safety standards.

    1. Josh says:

      The main purpose of the three wheels is to avoid the crash testing standards.

      While the vehicles are intriguing from an efficiency standpoint, they are likely to only be marginally safer than a motorcycle. In other words, you will be caught dead in them.

    2. CDAVIS says:

      Lensman said “Great to see these FTC directors speaking out and making a strong case”

      I agree it’s great to see FTC directors speaking out pro yes-direct-sales but the underlying case presented in their open letter is very weak in that it does not give one something technically constructive to work with. It would have been better to loosely float out a constructive legal theory such as no-direct-sales states may constitute a conspiracy (state officials + local franchise dealers) in restraint of trade.

      1. CDAVIS says:

        But on the other hand….perhaps Lensman is correct that it’s a “strong case” if the open letter was purely intended to be word candy to promote public sentiment in favor of yes-direct-sales. Perhaps public sentiment + technical legal basis is what’s needed.

  10. ffbj says:

    The FTC is just reiterating previous support for Tesla, least we forget I suppose.
    It’s all good.