According to CNN Money, Tesla Motors, Inc. (TSLA) is an electric car company with big plans: create the world’s largest lithium-ion battery factory, build a network of high powered charging stations across the US, and sell its cars directly to consumers to demonstrate their groundbreaking product. But Tesla’s direct to consumer approach has met tough opposition from the automotive industry and the lobbyist companies that support them.
Cutting Out the Middleman
Right now, when you visit a car dealership to purchase a new Chevy or Ford, you are not buying from the manufacturer directly. You are visiting a licensed dealer who has Chevy or Ford’s authorization to sell their products (This is similar to the franchise system. A McDonald’s franchise owner doesn’t work for the McDonald’s but is authorized to sell their products).
Tesla wants to change that. Tesla uses a direct sales approach which brings the company directly to consumers. By cutting out the middleman (the dealers), Tesla believes it can educate Americans to the benefits of its product as well as lower consumer prices. According to Tesla’s website (teslamotors.com), Tesla offers a $100,000 Roadster and a $75,000 Model S sedan. With its direct sales approach, Tesla believes it can lower prices and offer an economy model for around $35,000.
Dealers Create Strong Opposition
However, Tesla has met fierce opposition. A direct sales model could upend the automotive industry and hurt dealers throughout the country. Dealers worry that future companies would also sell direct to consumers through retail or online outlets, bypassing independent franchise owners who sell and service authorized vehicles. Backed by the giant automotive lobbyists, governments have been slow to accept Tesla. According to Danielle Wiener-Bronner , New Jersey Gov. Chris Christie banned Tesla from selling vehicles from its two New Jersey stores. Tesla will use its stores as a gallery to promote awareness about its innovation product.
Ohio and New York say Yes to Tesla.
Tesla currently has a store in Cincinnati and Columbus, Ohio. According to Zacks Equity Research, Ohio lawmakers agreed Tesla can keep its current stores open as well as open a third store in Cleveland. However, Tesla is not allowed to open more than three stores, and Ohio passed legislation that prohibits future automakers from following Tesla’s model and selling directly to the consumer. According to Automotive News, New York passed a similar agreement, allowing Tesla to keep its five existing stores open but prohibiting the company from opening additional stores. After initial opposition in Arizona, legislation passed allowing Tesla to bypass dealers and sell its cars directly to consumers. The Tesla showroom in Scottsdale, Arizona was limited to online orders. Now Tesla can sell directly to Arizona residents under the new dealership legislation.
An Innovative Future
Tesla is unique not only for its entire line of electric vehicles, but also because of its direct sales approach. This new approach to consumer sales is threatening to shake up the market and has automakers and legislators scrambling to determine what are best for consumers and the automotive industry. Tesla is known for its innovative products and its marketing strategy is also inventive and groundbreaking.
“Tesla superchargers take over America,” CNN Money
Danielle Wiener-Bronner, “Why Does Tesla Need Dealers to Sell You a Car In New Jersey?” Yahoo News
“Tesla reaches deal to keep 5 N.Y. stores,” Automotive News
Zacks Equity Research, “Tesla Reaches Profitable Truce in Ohio,” Yahoo Finance