March 18, 2014

Tesla Motors, the American manufacturer of all-electric vehicles, has a non-traditional method of selling their automobiles. Instead of trying to establish a relationship with the dealer networks utilized by the mainstream auto manufacturers, Tesla has opted to eliminate the middleman and market their vehicles directly to consumers.

It was a deliberate move that CEO Elon Musk believes is essential to future success of the company. In a March 14th open letter on the Tesla Motors company blog, Musk explains further:

The reason that we did not choose to [market through auto dealers] is that the auto dealers have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none. Moreover, it is much harder to sell a new technology car from a new company when people are so used to the old. Inevitably, they revert to selling what’s easy and it is game over for the new company.

The evidence is clear: when has an American startup auto company ever succeeded by selling through auto dealers? The last successful American car company was Chrysler, which was founded almost a century ago, and even they went bankrupt a few years ago, along with General Motors. Since the founding of Chrysler, there have been dozens of failures, Tucker and DeLorean being simply the most well-known. In recent years, electric car startups, such as Fisker, Coda, and many others, attempted to use auto dealers and all failed.

This decision has not been without backlash from the dealers. In many states, auto dealers have lobbied to have new dealer licensing rules that would effectively block Tesla from establishing their own stores in the state. It would be difficult to get a rule approved that would explicitely ban a particular company, such as Tesla, from selling in the state, so the proposed new rules are more creative.

For example, a rule change currently under consideration in New Jersey would require all dealers to produce a copy of its franchise agreement to the NJ Motor Vehicles Commisson before the dealer can be licensed to sell in the state. However, this would effectively prevent auto manufacturers from selling their own vehicles because they would not be able to have a franchise agreement with themselves and would thus be unable to be licensed in New Jersey.