Tesla Motors has an unconventional sales strategy. Model S buyers deal directly with the manufacturer, typing the exact options they desire into Tesla’s website and receiving their bespoke electric car some time later—the current wait is about three months.
It’s an unprecedented variation on the traditional car-buying process, one that was only made possible by the advent of online shopping.
But so far, Tesla is the only automaker in the U.S. that sells directly to customers. In large part, that’s due to state laws that protect franchise dealerships, businesses that buy vehicles wholesale from manufacturers and sell them, at a markup, to consumers. Every U.S. state has some form of law enforcing this arrangement, which means the process of buying a Tesla can vary wildly depending on where you live. Each state’s legislature must figure out independently how it wants to deal with Tesla’s sales setup. And that’s making some states into car-sales battlegrounds—including Connecticut.
Taking On the Establishment
Connecticut State Senator Art Linares is bullish on electric cars. The 26-year-old Republican started a solar energy company called Greenskies out of his family home when he was still a teen. Recently, he decided to buy a Tesla Model S P85D, the high-performance, all-wheel-drive variant of the company’s all-electric sedan. “I’ve always been a fan of electric cars, and of course, all roads lead to Tesla if you’re an electric-car fan,” Linares told R&T over the phone.
But Senator Linares found out that in order to test-drive a Tesla—even just to kick the tires—he had to make a border run to a Tesla Store in White Plains, New York.
See, while you can complete the entire Tesla purchase transaction on the California carmaker’s website, if you want to chat with a salesperson or stick your head in either of the Model S’s twin trunks, you’ve got to go to a Tesla storefront. And thanks in part to the state’s car sales laws, there are no Tesla storefronts in Connecticut. (The company does have a service-only facility in Milford, Connecticut, on the site of an old Saturn dealership, and a Supercharger charging station at the Milford rest stop on Interstate 95.)
Currently, Tesla operates storefronts in 24 states and the District of Columbia. As company spokesperson Alexis Georgeson explained to R&T, the carmaker operates two different types of facilities: Tesla Stores, and Tesla Galleries.
Both Stores and Galleries serve as places where interested folks can look at a Model S in person, and ask the usual questions—how do I charge it, how do I take a road trip, how much will I spend on electricity, etc. “Questions like that, that the dealers don’t have to answer when people walk in to buy an internal combustion engine because we’re all really familiar with that technology already,” Georgeson told R&T.
At a Tesla Store, if you decide to purchase a car, you can place your order right then and there. Frankly, that’s the most you can do: Since Tesla builds every car to order, the company doesn’t maintain an inventory anywhere. “We don’t have the production capacity to be building hundreds of thousands of cars yet,” Georgeson explains. So even if you reserve your car on the same day you visit the Tesla Store, you still have to wait the few months while your Tesla is built.
But placing an in-person order for a Tesla is illegal in Texas, Arizona, Maryland, and New Jersey. These are the states where Tesla Galleries exist.
“In those locations, you can still come in, you can still get all of your questions answered about what it’s like to own and drive these cars,” Georgeson said. “But we can’t discuss price, we can’t offer test drives, and we can’t take orders.” You can, of course, go home and place the online order yourself—thankfully, no state legislature can outlaw that—but your conversation with a salesperson in a Tesla Gallery will probably be pretty frustrating.
“We just can’t help you through the order process or discuss price,” Georgeson said. “Nothing that’s sales related. If you have any questions specifically about the order process, they get routed to our inside sales in California.”
It gets stranger: In Michigan, the laws are so strict, they prohibit Tesla from even opening a gallery—thanks to a provision backed by that state’s dealership organization (and supported by General Motors), one which earned Michigan Governor Rick Snyder the Information Technology & Innovation Foundation’s “prestigious” Luddite Award.
Senator Linares doesn’t want Connecticut to remain Tesla Store-free. So he introduced a piece of legislation that seeks to carve out an exemption for the electric carmaker. “What we’re trying to do is simply allow Tesla to open up [stores] here in Connecticut, and limit …any new direct sales just to Tesla.”
But as soon as Senator Linares proposed this exemption, the state’s dealership association lashed back—with a striking new website, TeslaCrash.com.
Dealers On the Offensive
Underneath a red-spattered icon that vaguely resembles Tesla’s logo font, and features an image of a crashed car that is definitely not a Tesla, TeslaCrash.com brings the reader two things: A scrolling list of headline links to Tesla horror stories, and a statement from Jim Fleming, President of the Connecticut Automotive Retailers Association.
“We don’t understand why Elon Musk wants to introduce legislation that would circumvent the auto laws and rules that we all follow,” the statement reads in part. (In fact, the legislation was introduced by Senator Linares, not Tesla Motors or its Chairman and CEO, Elon Musk). “When it comes to recalls, warranties, and securing the lemon law, dealers have been advocates for consumers for many years when problems arise or car companies fail.”
Below this statement are links to online articles from around the web. The criteria for inclusion seem to be pretty loose: If an article says something negative about Tesla, it’s a winner.
Some of the featured posts are at least topically sales-related, like this Wall Street Journal report about how the carmaker’s fourth-quarter 2014 losses widened as the number of delivered vehicles fell short of predictions.
Others are head-scratchers, like this Jalopnik post by Michael Ballaban titled “Person Buys Tesla, Person Immediately Crashes Tesla.” R&T asked Jim Fleming what this has to do with the consumer services he says franchise dealerships offer.
“Our point is that we don’t want to see our consumer-protection laws crashed,” Fleming told R&T over the phone. “Tesla’s really, really good at marketing their point of view.This was one way that we felt we could get our side of the story out.”
The president of the Connecticut Automotive Retailers Association contends that, since franchise dealerships are independent from the car manufacturers that pay them to perform recall and warranty repairs, these dealerships can advocate on the customer’s behalf in instances when the carmaker has an incentive not to spend money.
“Especially when you get into a situation where it’s sort of a gray area if it’s under warranty or not under warranty, the dealer is far more likely to advocate for the customer because it’s an independent store,” Fleming told R&T. “It’s dealers who sit next to their customers and advocate for a lemon-law replacement. Especially [for] a customer that’s been coming to a dealership for a number of years.”
TeslaCrash.com also mentions the collapse of Saab, as well as the ongoing GM ignition-switch recalls, as examples of franchise dealerships acting as consumer allies. “It was the dealer network that provided the protection to so many Connecticut consumers in the Saab situation,” Fleming told R&T. “We worry when you have direct sales, whether it’s Tesla or someone else, that the dealer network would not be there to protect consumers for such things as parts [or] following up on warranty work,” Fleming said.
It’s a line of thinking that featured prominently in testimony Fleming gave to the Connecticut state legislature earlier this month,which you can read in full here.
“Some of you might remember Yugo, the car from the ’80s that was briefly all the rage? When the company went belly up, Yugo owners were left without a safety net,” Fleming said in his testimony. “Since that time, this legislature and state have developed and strengthened auto-retail licensing and franchise laws so that this does not happen again.” He went on to say that, despite Connecticut dealers’ offers to sell Teslas alongside all the other brands, Tesla “touts its renegade status.”
“Tesla is a speculative company,” Fleming testified, after invoking the failures of Saturn, Saab, and Hummer. “I bring this up not to disparage them—I like the car—but to let you know they hold more potential risk than any other carmaker to their business folding.”
That reasoning doesn’t fly with Senator Linares. “I understand their position, but quite honestly I fundamentally disagree with them over their argument,” he told us. “I don’t think Tesla will go out of business. I think it’s a great business—the President of the United States mentioned them in his last State of the Union address. They have a great market cap, they’re stable.”
Senator Linares also feels that traditional franchise dealerships have an incentive to steer buyers away from the other EVs on the market and toward conventional vehicles. “Dealerships make most of their money off of servicing the vehicle,” the Senator said. “There’s not a reason to really take [an EV] in for service as often as some of these internal combustion engine vehicles need service. So I don’t think that dealerships are really trying to sell these cars,” he said.
Indeed, that’s one of the reasons Elon Musk has cited himself when asked about Tesla’s iconoclast model. Musk points to the historically poor reception of electric cars that were sold through conventional franchise dealers, and the possibility that salespeople at multi-brand franchise dealerships could steer customers away from Tesla vehicles and toward the kind of cars that need oil changes every few months.
Speaking for the Connecticut Automotive Retailers Association, Jim Fleming contests this characterization. “No salesman is going to try to put somebody into a car that they don’t want,” he told R&T, “That just does not make sense.” And he claims that Senator Linares’s proposal opens up a loophole that’s bigger than Tesla alone.
“It is illegal to pass a statute in this state that is directed toward a single entity such as Tesla,” Fleming says. He should know—in the 1990s, Fleming was a Republican on the Connecticut legislature, at one time serving as Senate Majority Leader.
“If the legislature were to put this loophole in, it would not just say Tesla,” Fleming told R&T. “It would try to define a company similar to Tesla, and there are many … startup companies that very well could take advantage of this,” he said. “If you have a problem with an auto dealer in Connecticut, they’re local and they’re here. If you have a problem with someone … that’s located in Palo Alto or is located in Guangdong, China, that’s a big problem.”
Indeed, one of the stories that TeslaCrash links to is this USA Today report of a Wisconsin Tesla owner suing to have his allegedly defective Model S bought back under the state’s lemon law. According to attorney Vince Megna, who represents the car’s owner, Tesla’s sales agreement requires legal disputes to be filed in the company’s northern California courts, a major inconvenience to customers living elsewhere.
A Nationwide Battle
The fight over Tesla is by no means limited to Connecticut. In the past month, a similar struggle has unfolded in Texas. Gearing up for that state’s legislative session, Jalopnik’s Patrick George reports that Tesla is employing 21 lobbyists, including former staff of Gov. Rick Perry, at a cost that could exceed $1 million. Last week, two Tesla-backed bills were filed in Texas, seeking to let automakers that have never sold through traditional franchise dealerships build up to 12 direct-sale facilities in the state—similar to exemptions enacted in New York, Ohio, and Pennsylvania.
In Texas, these bills enjoy bipartisan support. Connecticut’s Senator Linares says the same is true for his proposal. “I could tell you from a Republican perspective, I think it supports our message for free-market capitalism and competitiveness. [M]y view is, the less regulations that prevent innovative businesses from growing, the better,” he told R&T. “From the Democrat perspective, they can rally behind the idea that this is an environmentally friendly bill.”
That bipartisan claim is backed up on the national scale by one of the strangest political pairings we’ve ever seen: Earlier this month, a pro-Tesla letter sent to governors and legislators nationwide bore the signatures of both the left-aligned Sierra Club environmental group and the right-wing political powerhouse, Americans For Prosperity, which was founded by the Koch brothers.
“[T]here are no valid reasons to use these laws that were intended to protect dealers in franchising relationships to thwart new market entry and competition from companies that do not seek to use franchised dealers at all,” the letter reads in part.
These laws retard innovation by making it harder for new technologies to achieve wide distribution and hence reach an adequate scale to be sustainable in the market. They put one more obstacle between consumers and the technologies that can help reduce carbon emissions and prevent consumers from accessing clean cars. Finally, these laws do not rest on a legitimate public policy basis for constraining the ability of a company to choose how to operate its business.
Speaking for Connecticut’s franchise dealers, Jim Fleming sees it differently.
“You’re not gonna pay the MSRP Tesla price for a vehicle if it goes into the franchise system,” he told R&T. “If you go into a Tesla corporate store … you’re going to pay exactly the same price because that price will be set in Palo Alto. If you went into a franchised corporate store in Connecticut, and there were three stores, you would find that there is a difference in the price,” he said.
“We think the Connecticut dealers can sell them quicker, we think they can sell them without giving up the consumer protections that are involved in our franchise law, and we think ultimately it’s going to be better for Elon Musk’s company because the dealers are going to assume a lot of those costs, and he can concentrate on building more cars rather than … have longer wait times to get them. I think my dealers can sell these vehicles—the Tesla vehicle—better than Elon Musk. I’m absolutely sincere about that.”
If Tesla’s previous moves are any indicator, that won’t be happening any time soon. While Tesla spokesperson Alexis Georgeson concedes that the electric carmaker might “consider a hybrid model in the future,” Musk himself puts a strong caveat on that.
Speaking in Texas last month, he said that while Tesla might pursue a franchise model sometime in the far-off future, “anyone who’s been a huge jerk to us thus far is not going to be one of those franchisees. If they’ve been punching us in the face, they shouldn’t expect we’re going to be their friend.”
As for now, the future of Tesla’s sales model is up for debate. And as states like Connecticut and Texas figure out how to deal with this unprecedented question, consumers wait patiently to see what the future of car sales might look like.