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Sandy Eggo said:

Do you think the real reason they have resisted setting up a dealer network is that a dealer would have to push the price beyond what is already barely reasonable for such a car - just to make a profit? I'll bet it has something to do with it.

Elon's been arguing that Dealer's would not be good advocates for such a car (too 'different') and sales would suffer. Really? Or is it just that a perfectly rationale dealer/salesperson will quickly surmise that they can make a much fatter profit selling the BMW 5 series (on their lot) rather than the Model S?

Sorry Elon, you gotta compete just like everyone else. With the momentum they have now, I think Dealers would stampede for the chance to own a Tesla franchise/dealership. Time to drop the protectionist bullshit and open a proper dealer network.

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Sandy,

I think you have a point that adding a Dealer network would either increase the final price of the car to consumers, or erode Tesla's profit margin per car, or both. I'm don't see how either of those things are good for the consumer or Tesla though.

I agree that lots of people would like to be Dealers right now. People are falling over themselves to buy a Model S at the moment. That's because Tesla has invested heavily not only in the product but in marketing, savvy PR and Elon himself has been quite the poster child. As a result they have built up a very impressive brand and goodwill. These things are real assets that Tesla created - why should they give them away?

The automobile industry is the only business I can think of where the people who make a product aren't allowed to sell it. How does that make sense? In a true market based economy which you seem to espouse, the creator of a product should get to make whatever choices they think are best for reaching their customers, be it direct ownership of the brand message and sales channel (as Apple has been so successful with), by partnering with distributors or franchisees (which is how most perishables and many consumer products are sold) or through a hybrid of both which is how many many products are sold these days - I can buy a pair of Levi's from the Old Navy or directly from levi.com

The dealer's argument that it creates a monopoly is a bit ingenuous, as dealers often sign exclusive territory agreements with car manufacturers, essentially giving themselves a monopoly in the markets they serve. How does that benefit consumers any more than Tesla selling directly?

If Tesla is doing the marketing and advertising, if Tesla is doing the servicing, and if Tesla is making the product, exactly what value does a dealer network add to justify the extra pass-along cost or margin erosion? I just don't see it. On the other hand, I think Elon has a point - If a dealer can make more money selling a BMW than selling a Tesla to a given consumer they will opt to sell the BMW, which from Tesla's perspective is not a desirable state of affairs. Why would a company with a fiduciary responsibility to it's stakeholder choose to make that deal if they feel they can do a better job cheaper themselves?

The protectionism here isn't coming from Elon, it's coming from the well monied and well lobbied Dealer's interests who know they have a nice racket going and a direct sales model threatens that.

I think direct sales are coming to all car makers eventually for precisely the reasons stated above. Tesla isn't the only one playing with a direct model, but since they don't have a history and the contractual obligations of the legacy model that are a lot further along. Dealers may win victories against Tesla but I don't think they will be able to stem the tide forever. Bastardizing Victor Hugo, Nothing is stronger than an idea whose time has come.


Brent

LonePalmBJ said:

Well right now for many states a manufacturer is legally obligated to use a dealer network whether they want to or not. In some states it is more-or-less illegal for Tesla to sell directly. Some states are even trying to make buying the car online (which to my mind is interstate commerce) illegal.

This is what Tesla is looking to change or challenge, and why they are in multiple state-based litigation. The dealers in these states are well entrenched and are funding lobbyists and advertising to thwart Tesla, and in some states (like Texas recently) are winning some battles.

For manufacturers I expect that their Dealer Network agreements expressly prohibit them from direct competion as well.

Brent

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Exactly the issue. States like Texas, Louisiana, New York, etc will never change the laws to allow a manufacturer to sell direct.

In Louisiana, after GM and Chrysler starting shutting down dealerships in 2008-2009, the legislature went into emergency section to create a law that says if you (the manufacturer) close a dealership you have to buy the building, signs, tools, parts inventory, vehicle inventory, etc. .

Texas is another one. They go so far as putting limits on who I can sign up as a dealer and where. The general rule is 1 dealer per county. If you've ever been to Texas you wonder how that law ever passed. In Harris Co. (Houston area), a manufacturer would like to have a dealer on 59-N (Humble area), 59-S (Sugerland), downtown, 45-N (Spring), 45-S (Clear Lake/Friendswood), 10-W (Katy, West Houston), 10-E (Baytown, East Houston),etc.

So how do you do it in Texas? You have to ASK the FIRST DEALER you sign up in each county if it's OK if you sign someone else up. If they agree, they tell the motor vehicle board they're cool with it.

FL is much the same. You have to ask the dealer if you can add another dealership if the new location is within a certain distance.

The reality is, manufacturers should do what they do best---make things. Let the professional retailers sell the product and service it. It allows the consumers some protection from the manufacturer pushing services on you and what happens if the make goes under? At least there is a chance to get service.

I wouldn't want to try and run 150 dealerships nationwide. Each market is so different and many of the dealers are well known business people who are involved in the community because they live there.

Tesla has momentum; don't loose it by pissing off the very people that could help you take it to the next level. I understand "why", but the pros far out weight the cons of not going nationwide.

Many years ago I called Tesla about opening a dealership here in Georgia. I was told politly that they won't be doing business as usual. Here we are 4 or 5 year years later and you can't buy a Tesla in Atlanta.

Bill

ffcars said:

Exactly the issue. States like Texas, Louisiana, New York, etc will never change the laws to allow a manufacturer to sell direct.

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Thanks Bill. That provides a lot more detail around my general comment.

Note that there's two issues at hand: 1) Whether or not Tesla should be allowed to use a direct model if they want to, and 2) Whether or not they should. I've only been speaking to the first issue. I'm of the opinion that the company should be allowed to sell their product however they wish and let the market decide if they are successful. There are lots of good reasons why having a dealer network could be useful and I'm not arguing that, but if Tesla thinks they can build a better mousetrap the legal business environment should encourage innovation not stifle it.

BTW, You can't buy a Tesla in Atlanta from a local Tesla dealer, but you certainly can buy one if you live here. Order direct online or by phone and it's delivered to the Tesla service center in Marietta where it is prepped and delivered to the new owner with some pomp and circumstance. There are probably upward of 100 Model S's running around the ATL now. I'm a member of an Atlanta Tesla Owners and Enthusiast group online here: https://www.facebook.com/groups/TeslaMotorsFansAtlanta/


Brent