Tesla is in the hot seat for its peculiar selling practices. Bypassing the dealer and selling directly to customers has enraged auto dealers and raised questions about ethical selling practices. However, Elon Musk, the auto manufacturer's CEO, is not backing down.
Unlike traditional manufacturers who sell in bulk to independent dealers, Tesla adopted a direct-sales approach. Instead of letting the dealer act as a middleman, Tesla decided to sell its vehicles directly to the public. This caused opposition from other automakers and dealers for a variety of reasons. In addition to the direct-sales approach, Tesla has introduced a few unique features to the sales process:
- No haggling. The sticker price is non-negotiable. This allows Musk to control the entire sales process from production to sales, and means that other dealers cannot sell the autos at a discount, thus allowing Musk to maximize profits.
- Monopolized maintenance. You cannot walk into a standard dealership and receive maintenance on your Tesla. Maintenance is only offered at private garages owned by the company.
- Showrooms with limited capabilities. Currently, there are 37 showrooms throughout the United States nation. They are equipped with a few display and test drive models, but the cars at these locations cannot be purchased. Instead, a customer service representative must take your order and have the vehicle shipped to your residence.
Pros of the Direct Sales Model
Musk is in favor of the direct sales model because he fears dealers may misrepresent his product, especially those who also sell gasoline cars and have aggressive sales targets to meet each month. He believes that representatives who are too sales driven will not place enough emphasis on the benefits the brand has to offer. Diarmuid O'Connell, Tesla's vice president for business development, told CNN "it will be too easy to simply steer customers to gasoline cars rather than bothering to explain the benefits of the Model S."
However, dealers disagree. In fact, Bill Wolters, president of the Texas Automobile Dealers Association, suggested in a statement to CNN that dealers have a strong desire to sell Teslas because they cater to an untapped market.
Cons of the Direct Sales Model
Dealers are concerned about the direct sales model for two distinct reasons:
- First, they fear other manufacturers may be encouraged to follow suit, which could lead to the demise of franchised auto dealers.
- Second, dealers have safety concerns if the manufacturer shuts it doors. Will owners be stranded without assistance because independent dealers aren't equipped with the parts or expertise to work on the vehicles? If so, this presents safety issues due to the lack of service on the vehicles.
Statewide Bans and Restrictions
Auto sales are regulated at the state level, and some have chosen to rule against the practice of direct sales. Forbes.com provided the following breakdown of the current and pending legislation regarding the practice of direct sales in states around the nation:
States With Statewide Bans
The following states have bans on the sale of Teslas:
- New Jersey
States With Significant Restrictions
These states restrict the sales of Teslas:
- Georgia - Only 150 cars per year can be sold in the state.
- Colorado - Only one store is open, and one more can be constructed under state law.
States With Pending Legislation
The following states are voting or trying to pass legislation to restrict or ban Tesla sales:
- Ohio - Limit of two stores can be built in the state if the bill is passed.
- New York - Auto dealers desire a complete ban of sales, both online and at showrooms
States Where Legislation Is Likely
Because of the outrage amongst auto dealers, legislation is likely to be introduced very soon in the following states:
- North Carolina
Buying a Tesla in a State With Bans
Consumers residing in states that ban the sales of Teslas, can still visit showrooms to take a peek. However, the customer service representatives are unable to disclose any pricing information or take orders on the spot; ordering must be done online and deliveries can only be made from third-party vendors. In addition, test driving isn't permissible in the states with bans, with the exception of Maryland.
The Future of Tesla's Sales Model
Musk prefers to fight the battle at the federal level, but it remains in state courts for now and the National Automobile Dealers Association plans to keep it that way. Bailey Wood, a spokesman for the organization, mentioned to Fox News that he would continue to support the states' battle if legal battles were eventually escalated to the Supreme Court.