Tesla’s Direct-Sales Approach Expected To Come Under Intense Fire When Model 3 Arrives

OCT 9 2016 BY STEVEN LOVEDAY 72

Tesla Model 3 - Image Via Datcode on Imgur

The Tesla Model 3 Will Up The Stakes For Both Sides In Tesla’s Direct-Sales Battle

Tesla is already dealing with multiple battles regarding its direct-sales approach. Some states have been forgiving, others somewhat flexible, and still others, unwilling to budge.

Tesla Model X

Tesla Model X

The scary fact is, Tesla is not really selling that many cars right now. This quarter has shown a huge sales percentage spike for the company, and ever-increasing Model X sales, but in the grand scheme of things, it’s a drop in the bucket.

That is all about to change monumentally. When Tesla comes forward with over 400,000 sought after Model 3 sedans, starting at just $35,000, the stakes will be much higher.

Dan Crane, senior professor of law at the University of Michigan and an advocate for direct sales, told Automotive News:

“With the Model 3, the stakes go way up. This is the next battle, and it’s not remotely over.”

Advocates against Tesla’s lack of the dealership model are going so far as to set time lines and stipulations, so as not to include the upcoming Model 3 in current amendments. This type of lobbying and lawmaking not only affects the future of Tesla, but other start-ups in the mix.

Automotive News sheds light on Tesla’s current trials:

• Michigan: State tightened its franchise laws in 2014 and rejected Tesla’s request for a dealer license. Tesla filed a federal lawsuit against state officials, challenging the prohibition on direct sales as protectionist and unconstitutional.
• Missouri: A state judge ruled Aug. 31 that a dealer license Tesla received in 2014 was granted in violation of the state’s franchise laws because Tesla had applied to be its own franchisee. The ruling bars the state from renewing or granting any licenses to manufacturers.
• Indiana: A General Motors-backed bill pending in the legislature would put a 30-month expiration date on any manufacturer’s current dealer license and ban any additional manufacturers from getting a dealer license.
• Arizona: State last month granted Tesla a license to sell directly to consumers, following a judge’s July 29 ruling that a previous application was wrongfully denied.
• New Jersey, Ohio, New York, Nevada, Washington and Georgia allow franchise-law exemptions only to companies operating in the state as of a specific date.

Unless Tesla makes some sort of miraculous headway, other companies will be dealing with the same situation, on a more advanced level. Tesla argues that the dealership model would be unfair for the sale of electric cars, because dealers are more apt to try to sell ICE vehicles that produce more business and greater profits. Also, Tesla’s vehicles don’t need regular service at dealerships, due to over-the-air updates, no oil to change, no spark plugs, no emissions checks, etc. Thus, the dealer gets less repeat business.

Advocates for the dealer franchise model believe that it helps make the selling of vehicles “fair” and “monitored”. Regardless of the company or what’s under the hood, it’s just how it’s “supposed” to be done. While this may have worked and been the way to go many years back, times change, and sometimes, what works for one, may not work for another.

When the initial headwinds against Tesla’s approach started blowing, it was not nearly as big of an issue as it’s going to become. Not just because of the small sales volume, but also due to the high cost of the Tesla Model S. Indiana state representative Ed Soliday explained:

“The issue is what’s the right public policy and what is the minimum to protect the public in a very, very expensive purchase that is now not going to be an expensive sports car but is now going to be available to the average consumer. When it was a $100,000-plus car it didn’t get a lot of attention.”

Eventually, due to continued resistance from states like Indiana and Michigan, the situation may rise to the federal courts. Generally, federal courts tend to support state policies. But Tesla lawyers are prepared. They will argue that precedence was set in 2002 by the 6th U.S. Circuit Court of Appeals:

“Government can’t use protectionist regulations to restrict someone’s right to earn an honest living. The original ruling pertained to casket makers in Tennessee who were initially barred from selling their wares directly to customers without a state funeral director’s license.”

The same court will see the Michigan case if it gets to that level. Tesla also has other, similar rulings to cite, involving direct sales. In the end, the courts will decide Tesla’s fate, and though the company insists that it will not change its ways of functioning, it may become inevitable if Tesla is to coexist with the traditional model.

A “hybrid” system, allowing Tesla to mix its direct-sales model with some sort of dealership partnership, may become the answer. It’s not as if some dealers aren’t eager to work with Tesla. Musk never said that he would not be open to some type of agreement. He insisted:

“We would only do this if we were sure that the customer would have a really good experience.”

Unfortunately, it seems that putting the customer first, and the age old dealership franshise model, don’t always go hand in hand. Maybe Tesla can change that to benefit all.

Source: Autonews

Categories: Tesla

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72 Comments on "Tesla’s Direct-Sales Approach Expected To Come Under Intense Fire When Model 3 Arrives"

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Nice article. Hopefully, SCOTUS will swing its big stick. That could be minimum 2 years away, but lower court could uphold commerce (casket) interpretation sooner.

The franchisee model offers scalable service whereas the manufacturer model does not. Tesla is having a hard time servicing cars in a speedy way right now, and it’s going to get much worse with the 3. With other brands I could at least take the car to another dealer for service; not so with Tesla and their very few service locations. A for-profit service model incents service providers in a fundamental way that is lacking with corporate stores.

So what if Tesla has or will have hard time servicing the cars? That’ll just make the company bad, and consumers will vote with their dollars. It’s none of government’s business.

There are plenty of poor service organizations / companies / commerce, yet I don’t see the government trying to stop any of it. That’s because those bad practices will die a natural death in capitalist system. Tesla will face the same fate if they piss off enough people with poor service, big brother need not apply.

Rather, the government is probably the poorest servicer of all, and actively try to expand itself. Ever been to DMV? If they really cared about doing something about poor service, start by outlawing DMV.

but it is the business of government. while it might seem to you that everything should be run on the basis of “caveat emptor”, part of the role of government is to provide consumer protection because in the modern world it is not possible for every consumer to acquire expert knowledge about all goods and services that he might consume.

Laughable nonsense.

Buying a car is not buying an obscure medical treatment.

It does not require specialized knowledge.

Consumer Reports and Reputation is all that is needed.

American Automobile Buyers are not 5 year olds.

by your reasoning, ford would still be making the pinto.

i know the libertarian gab sounds good, but the reason why you think that you don’t need the government to provide a consumer protection role is because the system generally works. as a result, people like you believe develop the false belief that you are so smart that you would be able to figure everything out on your own if the government didn’t regulate manufacturers.

i say, bullsh@t on that; we’ve been down the laissez faire route before and it hasn’t worked out so well. that’s why it was abandoned.

Even if the government didn’t do anything, Pinto would’ve died. Ever heard of Corvair? When the word gets out that Pinto explodes by tapping on it, it will be gone very shortly.

In the days before when people could not get information, government mandate may have had some effect (or not; we won’t know without a do-over machine). But in today’s world, information is just a click away. Government can setup “rating” like consumer reports, and leave it up to the individual to decide if they want the product. There’s no need to ban.

It’s amazing how some people are so quick and willing to give up their freedom to choose and want others to give up that right as well. As Penn & Tell would say, forced dealership model is “Bullsh*t”.

Right. Yes, there is a role for government in consumer protection. For example, the FDA generally does a good job of screening drugs, even if they do go overboard sometimes (i.e., banning cyclamates).

But people would have stopped buying the Pinto when accident statistics made it clear the car was unsafe, whether or not the government had anything to do with it.

I see FDA mandate as something not needed. Just provide FDA approval / disapproval stamp and web site to conveniently search product (QR code?) to see how the product fared in FDA test: pass, fail, not tested, and more text for those interested. Then take personal responsibility for failing to heed the warning from FDA. There’s no need to ban.

One result of this might be more trust of the FDA and government. Some nutjobs say all sorts of crazy things about government banning things (even more than me). Let people be free and own their own bodies.

This is getting rather far off topic, but I’d rather see the FDA have an “A-B-C-D” rating for drugs; with “A” being the current system, “B” for drugs which cause a bad reaction in a small portion of the population but having benefit for most; “C” being for drugs which show some promise but have not had the extensive long-term clinical trials which the FDA demands under the current system; and “D” for “use at your own risk” cases, a category which could include what are currently called “supplements”; things which don’t have scientifically proven benefit, but have at least been shown not to be toxic.

The current all-or-nothing system bans far too many drugs which would be quite useful to most patients with a certain illness or condition, and only cause a bad reaction in a tiny minority of people. The current system also makes it so expensive to put a drug through the necessary drug trials that inexpensive drugs never reach the market… and that’s one of several reasons why health care costs are so unreasonably high.

the problem is, if you leave it to the public to “figure it out”, a lot more people would be getting killed before that happened.

US government’s job was not consumer protection. Rather, government’s job is to regulate interstate commerce, which they are violating.

But even if the government’s job is consumer protection, poorer services (which may not be true) is not consumer harm as they can simply vote different cars with their money.

Real consumer harm is forced-to-use monopoly like DMV, TSA and bunch of other “race to the bottom” alphabet soup agencies. And there are literally thousands of poor service in every commercial sector, and I don’t see the government trying to shut them down.

It’s not complicated. This socialist behavior of government trying to control the means of distribution is something that belongs in socialist paradise of North Korea, not in US.

So are you also against all NHTSA and/or dot safety regulation of cars?
Are you against all FAA safety regulation of aircraft as well?

The consumer protection brought up here isn’t financial protection as in lemon laws — it’s making sure cars on the road don’t actively threaten other road users.

Are you kidding me? You equate dealer model to FAA / NHTSA? If you’re that out of it, let me explain it to you. FAA / NHTSA would not be needed if people only fly / drive in private air / roads. But if you share with others in public (ie, government air space / roads), government must regulate.

There’s nothing government about dealer vs direct sales model. It’s pure capitalism as defined as voluntary trade of goods and services between individuals. If Tesla service is so bad, it’s no concern of the government.

You completely misunderstood me.
You started ranting ranting about the DMV and TSA, when it’s obvious such government agencies must exist (the fact the TSA specifically sucks, and that the DMV in some US states both sucks and is used for job nepotism is besides the point. Fix the problems with them).

Some people pretend that since the ICE is gone, there’s no longer any servicing to be done on EVs. Well, there’s still brakes, suspension, steering, airbags etc. — all safety issues — in addition to HVAC, interiors, non-drivetrain electrics (and given the high voltage/current in EV drivetrains, they’re a safety issue as well which should be checked every 1-2 years).

Of course it _doesn’t_ have to be dealers that provide servicing — but it still has to be provided for, and those service places need a business model, or most of the cars on the road will be unsafe. Suggest a business model for the service places, please. If it’s only the routine once- twice-yearly mostly-checking services, that’s not enough income.

It’s not clear that Tesla can do this at scale without loosening their tight control over licensing.

“…those service places need a business model…”

Yeah, and that model is called your local auto service/repair shop. There is no need, and little if any benefit, to co-locating that with a store that sells cars. If you go to a dealership to get your car serviced, or to buy parts, the area where you get that done is physically located in a different part of the building, and you deal with different people. Car salesmen don’t man the parts counter, nor do they fix cars. So what’s the benefit of having both under the same roof? They might save a bit of money on the light bills and the heating/cooling bills by sharing the building, but otherwise they might just as well be located in two different places.

You brought up FAA, etc. to put words in my mouth. My comment was regarding poor service provided by DMV, TSA. And if poor service is the issue to fix via dealership model, point is that the government should fix DMV, etc. first, the worst offenders. I also mention there are thousands of private companies providing poor service, yet you mention nothing about that, only wrongly putting FAA / NHTSA in the argument. And no, they will not fix DMV, TSA, etc, no matter how poor the service gets. But there are rare gems of efficient worker, and I make it a point to go out of my way to find supervisors to compliment him/her. In theory, it should help in raising their service level, even without government fixing them. They still suck, though. Of course cars need service. But that’s the responsibility of the car owner. If he buys a car where service is difficult, it’s his responsibility to put up with it or sell it and buy another car. If you see enforcing car service as government role, are you advocating for car service ageny (CSA) that will regularly patrol / pull over cars and ask for their… Read more »

what you need to understand is that “regulating interstate commerce” also includes regulating *what* is sold in “interstate commerce”. that regulation includes “consumer protection”.

Consumer protection is NOT part of commerce clause; otherwise, high sugary drinks would be banned along with fatty foods, alcohol, tobacco, chemistry sets, and whole host of other things.

But seriously, you think the founders of US thought that the government should save people from themselves? I mean, they let people move out to vast “uncharted” Louisiana Territory and face hostile native Americans and wild animals. I can see how Kim Jong Un might prevent that, but not US where personal responsibility is still valued.

“no comment” said: “…what you need to understand is that ‘regulating interstate commerce’ also includes… ‘consumer protection’. I’ll bet that if you could go back and interview the members of the Continental Congress who wrote our Constitution, you couldn’t find a single one of them who would agree with that. The reason for the interstate commerce clause was to make the Federal government the arbitrator of disputes between States, in such things as water rights, navigation of rivers, and to regulate tolls or tariffs imposed on goods traveling from one State to another. The idea that the Founding Fathers intended the interstate commerce clause to cover consumer protection is completely absurd. Let me remind you of what the 10th Amendment stipulates, because that is what the Founding Fathers intended: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. That principle, sadly, has been trampled on pretty thoroughly as the power of the Federal government has grown through the decades and centuries, at the expense of the power of the States. The Founding Fathers would be utterly appalled at the way the… Read more »

p2,

clearly, you don’t know how to read the US constitution. relations between the states is governed mainly by article 4. article 1 gives congress power to regulate commerce among the states. the commerce clause doesn’t have any of the other stuff that you have stated. to be clear, the “law of the land” is the US constitution, not the federalist papers.

your comments about article 10 do not apply because article 1 expressly gives congress the power to regulate interstate congress.

It’s truly disheartening to read someone expressing his utter ignorance of a subject in public.

At the very least, before you again express an opinion on the matter, read the Wikipedia article, so you at least have a bare outline of the actual facts… which are completely contrary to what you posted above.

https://en.wikipedia.org/wiki/Commerce_Clause

Yes please government protect me from Dealerships please……please

“part of the role of government is to provide consumer protection”

Sooo… they should outlaw dealerships who routinely engange in unethical business pratices slipping chargegs in at the finance stage…

Corporate stores are all about profit. Have you not been in an Apple Store??? Have you ever asked how much it costs to replace an iPhone battery?

As for service, more Teslas sold, means more service centers. Totally chicken and egg, here. I.e., both will occur when the market is flooded with Model 3’s and Model Y’s, etc.

And Franchised Dealerships are all about philanthropy and service to fellow man.

And singing Joan Baez songs.

I don’t know what your motive is here for posting that obvious fallacy. Of course we know you’re a serial Tesla basher, but why try to convince the unwary that Tesla will soon be adopting a more traditional dealership model? How does that serve your agenda of Tesla bashing?

The number of Tesla service centers will certainly need to increase as the number of Tesla cars on the road increases. Whether or not those service centers remain independent locations, or are co-located with Tesla stores, making them more like the traditional dealership model, is rather irrelevant to how many cars they can service or the level of customer care they can provide.

That argument makes no sense… Tesla has rangers and service centers… should be able to add more facilities and scale easily. when enough EVs are in market independent service garages should start to appear.

I think the dealerships have provided all the evidence that Tesla needs for their case. The dealerships are an inherent conflict of interest since they make more money selling ICE cars, car parts, car repairs, oil changes, smog checks, etc. The cannot sell electric cars fairly since they constantly guide people toward their ICE cars as has been experienced by car buyers all over the country.

the reason why attempts by tesla to use this argument will undoubtedly fail is because auto manufacturers have a lot of influence on vehicle preferences because of the way that they market the vehicles. the government also influences auto manufacturers with fleet fuel efficiency requirements.

but there are undeniably attributes about ICEs that would reasonably cause consumers to prefer them over BEVs. refill time versus recharge time is one. then when you consider that an ICE will often give you 400-500 miles on a refill versus an BEV that might give you 300 miles on a recharge.

it is going to be nearly impossible for tesla to carry the day with an argument that people *should* prefer BEVs over ICEs.

Doesn’t matter if consumers should do anything or not. If I come in an request an EV I should be given honest and knowledgeable answers to basic questions not talked out of one. Dealers can eat shit.

More BS from no comment who is undoubtedly connected to MB in some way.

I might remind no comment that the Tesla Model S BEV is already outselling the previous ICE cars (MB S Class BMW, Audi, etc) in the class that it competes with.

http://gas2.org/2016/02/15/tesla-model-s-outsells-mercedes-bmw-audi-and-porsche-in-us/

This fact alone is proof positive that a compelling, long-range BEV with the ability to DCFC on long distance trips is already preferred by consumers over a competing ICE model that can be refueled at a nasty, stinky gas station.

http://insideevs.com/electricity-tops-public-opinion-of-propulsion-source-which-could-replace-gasoline/

“but there are undeniably attributes about ICEs that would reasonably cause consumers to prefer them over BEVs.”

The question isn’t what most customers prefer, or don’t. The question is whether there should be a competitive market in which all auto makers can compete on a level playing field, or whether that field should be tilted in favor of gasmobile makers and their dealerships.

But hey, I give you troll points for your attempt at using a straw man argument to derail useful debate here.

It’s not about what people “should” prefer. It’s about giving people the freedom to choose which they prefer, and government should not interfere with that freedom. Not only the freedom to choose BEV over ICE, but also the freedom to choose how to purchase the vehicle (direct sales vs dealership model).

What I don’t get is why don’t they form some new wholly owned company to run dealerships in the states where they can’t sell directly to the consumer.

Kinda stupid they have to do something like that but it doesn’t seem like a big deal.

Telsa already tried that in Michigan and got their “Dealership” application denied.

The courts are not stupid. I think they would see Tesla creating a subsidiary company which pretended to be independent, but wasn’t, as an attempt to circumvent the law, rather than work within it.

That would be seen as a “bad faith” attempt by Tesla, and in my opinion would likely just give ammunition to lawyers for the State dealership associations which are trying to use the courts to keep out competition from Tesla Motors.

In my opinion, the dealership model is outmoded and will ultimately fail due to simple economic competition. Tesla is leading the way on this by necessity, not due to any altruistic cause. One reason Tesla is able to compete with larger, more established auto makers is because they do not have the dead weight of the “stealership” sucking away profits.

And it’s quite noticeable that the only comments here defending the “stealerships” are coming from serial Tesla bashers. It would be interesting to see a pro-dealership argument that wasn’t fallacious and came from an honest viewpoint.

Perhaps there isn’t one.

it is hard to see the arguments as presented in this article as being able to carry the day. first of all, the idea that you can do service on a bev based only on “over the air” updates makes unrealistic assumptions. an automobile is ultimately mechanical in nature; and you can’t repair mechanical problems OTA.

second, and most importantly, there is the economics of attempting to establish an extensive direct sale automotive model. think about how extensive the network of chevrolet auto dealerships is in the US (although mercedes benz is probably a better model for tesla). then imagine tesla trying to replicate that as a tesla-funded undertaking. there are four (4) tesla dealerships in the state of illinois. 4 dealerships isn’t enough for the chicago area, let alone for the state of illinois. tesla would have to set up car lots, in which they would have to inventory new and used cars. they would have to maintain service centers. and they would have to repeat this thousands of times across the country. the capital outlays for this would be prohibitive.

at present, tesla does not have a sales distribution infrastructure to support high volume sales.

So we should pass laws prohibiting companies from doing things that are hard? You keep repeating that arguments will fail, yet you dealership people cannot provide a good argument for why the law should prescribe a specific remedy.

It may be that dealerships have a purpose and will be here to stay, but requiring the one solution is not good for the country. We can require general rules like requiring that warranties can be honored, but specifying the specific remedy is against freedom, reason, and the good of the country. It will freeze an industry from progress as long as such laws exist.

no comment said: “tesla would have to set up car lots, in which they would have to inventory new and used cars.” Why? There’s nothing magical about the current dealership business model that makes it mandatory for cars to be sold that way. Tesla is doing just fine making cars to a customer’s exact order. Why couldn’t that be scaled up to higher volume? The only advantage to having rows and rows of cars sitting on locally owned dealership lots is that a customer can come in, buy a car, and drive it the same day. If Tesla’s model of online ordering, followed by a few weeks of wait time before the customer gets the exact car he wants, can’t compete against the traditional dealership model, then Tesla bashers like you have nothing to worry about. The only reason you’re posting here trying to convince the unwary that Tesla can’t possibly succeed is that you’re actually worried that Tesla will succeed spectacularly! “at present, tesla does not have a sales distribution infrastructure to support high volume sales.” That’s a good reason for Tesla to increase the number of stores and service centers it has. You have not made a case… Read more »

p2,

OF COURSE tesla needs to increase the number of “retail stores”! the point is, stuff isn’t free.

keep in mind, this is a world in which most of us are not elon musk fanboys. tesla has to compete against other car manufacturers. if a person can go to one dealership and buy from stock or he can go to a second dealership where he has to wait several weeks; not everybody is going to choose the second option.

some of you people seem to thing that made-to-order cars are something new invented by tesla. the idea of ordering a car and waiting weeks for it is nothing new in the united states. the reason why people don’t do it more often is because you can get a better deal if you buy off the lot than you can if you custom order. most people decide that the extra price paid for a made-to-order vehicle is not worth the extra money.

so, if you have to maintain ready to sell inventory to compete, inventory costs money. as i stated earlier, stuff isn’t free.

And here you are actually making the argument FOR Tesla! If enough people prefer the ability to purchase from inventory, either because they want to drive off with their car the same day or because as you say they will get a better deal buying a car from inventory, then Tesla will ultimately fail. If you believe that will happen, then you should not need the police power of government to point a gun at Tesla and prevent it from doing business the way it chooses.

Stop trying to regulate choice out of the market and stop trying to be the consumers’ big brother. Let the market decide if Tesla’s model is worthy.

You may be able to order a made-to-order car in the US, but if you order from GM, as I did, you may find that they are not competent even to do that accurately.

“no comment” said:

“…most people decide that the extra price paid for a made-to-order vehicle is not worth the extra money.”

Well if that’s true, then what are you so worried about? Since you’re a serial Tesla basher and you obviously hope Tesla is going to fail, then you should be arguing that Tesla should stick to what you think is a failing business model!

But of course, you don’t truthfully think Tesla has a losing business model. What you’re really concerned about is that Tesla has a winning business model gives Tesla a competitive edge against legacy auto makers. You want to see Tesla crippled by being forced to use the same obsolete business model for selling cars.

Large multinationals do have sales organizations in most countries in the world. Some use the direct sales model, others sales through retailers or a hybrid model. It is successfully done for nearly a century, there is no reasons Tesla can not do it. “tesla would have to set up car lots, in which they would have to inventory new and used cars” Why do you think this nonsense? Tesla does not use the ‘build to stock’ sales model. It is way to expensive and unfriendly to customers. Tesla uses exclusively ‘build to order’. This sales model gives customers exactly what they want. The prices are transparant. By ordering over the internet, the sales cost are lower. Without an aging stock, no need for discounts of cars nobody wanted to buy. No capital tied up in inventory on your lot. No incentive to sell the customer something else than he/she wants because that is what is available on the lot. No need for inflated MSRP because the dealer needs some haggle room. This far lower overhead is what enables Tesla to compete with its $35k car against BMW’s $35k cars. While GM’s $37.5k cars has to compete against cars with a… Read more »

i think that what you are suggesting is a new model of automobile sales. if that model is truly viable, then tesla is already able to use it in most of the states in the US. of course, opening up more states would be better from the perspective of tesla, but tesla can’t credibly assert that because 10 out of 50 states don’t allow direct sales that they can’t proceed with their business model.

that said, i don’t believe that it is a viable model to sell cars online like your would purchase a refrigerator from amazon.com. automobiles are regulated, and they do need service from time to time. it makes sense to me that most states would see there as being in the interest of protecting consumers within that state from having to send their cars out of state for service. so a presence that is just a retail store in a shopping mall would not do.

So what I hear you saying is that car buyers are simply too stupid to make their own choices based on the obvious information available to them and to live with the consequences of those choices. Therefore, car buyers (being so stupid) must have the government pass laws to protect them from themselves. They might make the wrong choice, so let’s pass laws to limit their choices. But we’re doing it for their own good, poor little lambs just wouldn’t be able to make good decisions on their own.

How about, no thank you. I can do my research and I think most Americans can as well. And in the end if I make a bad choice that bites me in the butt (like when my wife and I thought it was a good idea to buy a convertible when we had two small children) I’m an adult and I have to live with the consequences of my decisions. I neither need nor want the government limiting my freedoms under the guise of protecting me from myself.

Protection means been able to be away from dealerships and their sale practices.

“no comment” persisted in his anti-Tesla FUD campaign:

“…it makes sense to me that most states would see there as being in the interest of protecting consumers within that state from having to send their cars out of state for service.”

Another blatantly untruthful straw man argument. Tesla isn’t prevented from owning and running auto service centers in any State or every State. The protectionist laws, which State dealership associations are using to block Tesla from selling cars at their showrooms/stores, have nothing to do with servicing cars; only with selling them.

Last time I was a a Tesla Service center the guy told me: “We don’t make any money here”

This doesn’t surprise me. The service centers are probably a heavy weight for Tesla to bear.

It wouldn’t surprise me if one day Tesla decided to let independent dealers take care of the service centers, just to lessen their financial burden.

Why would an independent dealer want a Tesla service center that does not make a profit? That is why ICE industry does not want BEV to succeed.

“It wouldn’t surprise me if one day Tesla decided to let independent dealers take care of the service centers, just to lessen their financial burden.”

That makes no sense. Ideally, Tesla service centers should be profit neutral; the fees Tesla charges for service and repair should exactly cover the cost of running their service centers, and no more. Tesla is avoiding the “stealership” model of bilking the customer with inflated fees, unnecessary service and repairs, and double billing. That’s one of the big reasons why Tesla has a higher customer satisfaction rating than any other auto maker.

Why in the world would Telsa want to abandon its superior service model in favor of the inferior “stealership” service model, which so many customers hate?

It is the other auto makers who should be imitating Tesla… not vice versa!

@PMPU
“That makes no sense.”

All I’m going by is what the Tesla service center guy told me…that they don’t make any money.

If they don’t make any money then it costs Tesla corporation money to keep them up and running. Therefore Tesla corp has an incentive to sell the service centers off to another entity. Why keep a money losing entity?

PMPU said:
“Ideally, Tesla service centers should be profit neutral”

Reality sometimes differs from the ideal world.

They do not lose money either.
The service centers do make a profit of about 0.001%.

This. If we are to understand that there is no profit being made at repair centres, then that is by design. They are designed to support customers, not make Tesla a profit.

From experience Tesla repairs have been excessively fair in their pricing. Tires for us were seemingly replaced at cost… rims as well. Suspension maintenance was done for the same cost as our previous Hyundai Accent.

A+ for customer svc.

georges — Tesla`s service revenue and how much it costs them to provide that service are both tracked in their quarterly and yearly SEC reports.

They indeed make about a 1-2% profit on service for the reports I checked. Easy to see for yourself on ir.teslamotors.com

georgeS said: “All I’m going by is what the Tesla service center guy told me…that they don’t make any money.” But you jumped to the conclusion that they lose money. I submit that Tesla intends for their service centers to be profit neutral; to neither lose nor gain money. That’s what I meant; perhaps I was not clear. “PMPU said: [quote]Ideally, Tesla service centers should be profit neutral[unquote] “Reality sometimes differs from the ideal world” And I have no doubt that some or all of Tesla’s service centers do make a slight profit or lose a slight bit of money, because actually hitting the exact goal of zero money gained or lost would be very difficult, assuming all customers are charged equally for the same services and repairs. Tesla recently adjusted some of their prices for service downward, while increasing the fee for transporting cars long distances to their service centers. The point is that Tesla is trying to make their service centers profit-neutral, in sharp contrast with traditional “stealerships”, which make most of their income by servicing cars and selling parts. That’s why the practice of overcharging and double-billing for service is so prevalent that dealerships have gotten a… Read more »

There probably aren’t enough Tesla’s around to keep them occupied. When there are another million 3’s out there it will certainly change.

Interesting article. However, I’m not convinced that the courts is what will determine the fate of Tesla’s decision to use independently owned dealerships, or not. There have been a lot of people arguing that Tesla’s sales model won’t work with the high-volume sales expected for the Model ≡. So, it will be interesting to see if economic forces pressure Tesla to move to something closer to the traditional dealership model. Personally, I hope that never happens. I consider the “middleman” of the dealership to be an outmoded economic model which should become obsolete as soon as possible.

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I find it strange that so many hope that the
Supreme Court will decide the matter of Tesla Motors vs. various State dealership groups. A case working its way through various levels of the courts would take many years to resolve. A favorable ruling for Tesla at a lower Federal level would be far better for Tesla, because it would come much sooner.

If it doesn’t work, it’s at the peril and risk of Tesla. It should be their choice whether or not they want to go direct or go through franchises. No one should force them either way. Dell went direct and then to retail and then back to direct. Let the companies determine their own fate. Ordering a Tesla should be no different than ordering an iPhone, if that’s what the customers prefer.

It’s really a shame that this has to be settled in courts. It should be simple, as more and more people purchase Tesla cars out of State they will complain by making it a political campaign issue and vote against politicians who believe they should force consumers to buy cars from their dealerships.

While this would reflect ideal democracy, I don’t think many people would use this as their main criterion for voting, there being so many other issues critical to their lives. Anyhow, it would take years or decades for such a campaign to be effective.

How do you justify one law for auto companies and another for everyone else. If you are going to ban direct sales then ban Apple, Sony and everyone else from having stores or selling directly over the internet.

The dealership model is antiquated, inefficient, and corrupt. It will be swept away eventually. Although not without some stiff resistance from legacy car makers such as GM, who throw their weight around with their bought and paid for state legislatures.

+1 on the dealership model is antiquated, inefficient, and corrupt.

I however think GM hates the dealership model as much as everyone else and would probably love to throw dealers under the bus and drive over it repeadetly…

GM and other legacy auto makers are stuck with an inefficent 100 year old system…
The real problem I see is that Tesla has a huge gigantic competive advantage if they are the only company who does not have legalized extortion aka a middle man aka a dealership skimming there profits from every vehicle…

Dealerships pay off the state politicans aka donating to campign or wives charity to get laws passed stating that you can only sell your product if you sell your product through me…
Sounds a bit like mafia pratices…

Yogurt said:

“Sounds a bit like mafia pratices…”

Interesting. I was thinking that Tesla might actually make legal progress faster if it would appeal to State or Federal prosecutors to indict State auto dealership associations as violating the RICO Act (Racketeer Influenced and Corrupt Organizations Act)… since so many dealerships are corrupt and fraudulently charge customers on a regular basis.

I think there is a real legal case to be made that many or perhaps even most State dealership associations are cases of organized crime.

True, though they have not fire bombed any Tesla stores, as of yet.

Half a million customers and their friends and family are going to add to the pressure on politicians to resolve this.

It’s dealer franchises lobbying at the state level to protect their lucrative businesses. They are antiquated and the direct sales model is a threat.

The dealer and dealership model is outdated and antiquated. As a consumer, they brought no value to the process. I walk in, I negotiate, I sign and I bought. Did I really need them? The salespeople rarely know about their own products. With research I was better informed about the features, available options, etc. I’ve always asked why I need waste my time not getting gouged. Set a retail price and sell it. The markets will dictate what is fair.

At most I had a few things I returned to them for, which were warranty items. Ones that any average technician can perform. When warranty has expired, I look on Yelp to find a better alternative than their service Dept.

So a dealerships only real purpose is to markup and gauge the customer. Definitely not a contributor to a positive experience. Have you ever looked forward to dealing with the people at a dealership?

True, going to a dealership is like going to the dentist. It’s painful and it costs a lot of money, at least more than it should.
On average dealerships add 4% to the cost of the product.

Perhaps a good way to look at the dealership problem, is to think of a ship on a long distance voyage, that has developed a slow leak. The Capt. knows he won’t make port and he can’t pull a U turn to return. THE SHIP EVENTUALLY WILL SINK! Get used to it folks.

Only in America…