Recently I wrote about how Tesla’s unconventional distribution model has broad implications for auto retailing and the current distribution system between auto manufacturer and dealer. Elon Musk, Chairman of Tesla Motors, responded to concerns voiced by state dealer associations about Tesla’s direct-to-consumer approach for selling its vehicles. I’ve posted it in its entirety below. I think Mr. Musk’s most compelling argument is that Tesla’s activity falls outside of state franchise laws relating to factory ownership of dealerships because Tesla has not operated with independent dealerships to date. I still think concerns remain regarding protecting consumers conducting automobile transactions, which I elaborated upon in my post linked above. What are your thoughts?
There are reasons why Tesla is pursuing a company owned store and service center model that we feel are really important. In many respects, it would be easier to pursue the traditional franchise dealership model, as we could save a lot of money on construction and gain widespread distribution overnight. Many smart people have argued over the years that we should do this, just like every other manufacturer in the United States, so why have I insisted that we take a unique path?
GASOLINE vs ELECTRIC
Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars. It is impossible for them to explain the advantages of going electric without simultaneously undermining their traditional business. This would leave the electric car without a fair opportunity to make its case to an unfamiliar public.
Anyone who has experienced Model S understands that our car is quite different from other vehicles. It is designed with the aspiration of not simply being the best electric car, but being the best car of any kind. Despite being purely electric, it is faster 0-100 than BMW’s top of the range M5 (according to Automobile Magazine) and yet can drive incredibly long distances.
A journalist from The New York Times recently drove Model S all the way from Lake Tahoe to Los Angeles, a distance of 531 miles, using our new Supercharger system to recharge for free in less time than it took to eat lunch. In case your eye skipped over the “for free” part, I would like to emphasize that again – owning a Supercharger enabled Model S really does mean free long distance travel forever on our high speed charging network. Given the high cost of gasoline, this is something that only an electric car company can offer.
Model S also has the largest automotive touchscreen in the world and the ability to add new features and capabilities over the air, just like your computer or mobile phone. This is a car that will keep getting better the longer you own it, creating a difficult comparison for dealers that still have to sell large numbers of old technology gasoline cars.
REACHING PEOPLE BEFORE THEY MAKE A DECISION ON A NEW CAR
By the time most people decide to head to their local dealer, they have already pretty much decided what car they want to buy, which is usually the same make as their old car. At that point it is largely just a matter of negotiating with the dealer on price. Tesla, as a new carmaker, would therefore rarely have the opportunity to educate potential customers about Model S if we were positioned in typical auto dealer locations.
That is why we are deliberately positioning our store and gallery locations in high foot traffic, high visibility retail venues, like malls and shopping streets that people regularly visit in a relatively open-minded buying mood. This allows us to interact with potential customers and have them learn about our cars from Tesla Product Specialists before they have decided which new car to buy. The Product Specialists are also trained to answer questions about electric vehicles in general, not just ours. They are not on commission and they will never pressure you to buy a car. Their goal and the sole metric of their success is to have you enjoy the experience of visiting so much that you look forward to returning again.
As it is, our Product Specialists could not sell you a car today under any circumstances, as Model S is already sold out several months in advance and there is no inventory on site. All they can do is get you to consider placing a reservation. Our stores are designed to be informative and interactive in a delightful way and are simply unlike the traditional dealership with several hundred cars in inventory that a commissioned salesperson is tasked with selling. Our technology is different, our car is different, and, as a result, our stores are intentionally different.
FAIRNESS & FRANCHISING
The U.S. automotive industry has been selling cars the same way for over 100 years and there are many laws in place to govern exactly how that is to be accomplished. We do not seek to change those rules and we have taken great care not to act in a manner contrary to those rules.
Automotive franchise laws were put in place decades ago to prevent a manufacturer from unfairly opening stores in direct competition with an existing franchise dealer that had already invested time, money and effort to open and promote their business. That would, of course, be wrong, but Tesla does not have this issue. We have granted no franchises anywhere in the world that will be harmed by us opening stores.
Regrettably, two lawsuits have nonetheless been filed against Tesla that we believe are starkly contrary to the spirit and the letter of the law. This is supported by the nature of the plaintiffs, where one is a Fisker dealer and the other is an auto group that has repeatedly demanded that it be granted a Tesla franchise. They will have considerable difficulty explaining to the court why Tesla opening a store in Boston is somehow contrary to the best interests of fair commerce or the public.
It is further worth noting that these franchise laws do not even exist in the rest of the world, where almost three quarters of premium sedan sales take place.
Finally, I’d like to address another issue that is very important to us as a company. We believe service is a top priority for every customer. At the beginning of 2012 we had 10 Stores, 1 Gallery and 9 Service Centers in the United States. At the end of this year, we plan to have 19 Stores, 3 Galleries and 26 Service Centers. In less than three months from now we will have more Tesla Service Centers in the United States than Stores and Galleries combined. We are opening service centers in numerous cities where we do not even have stores. This will ensure that all customers in these areas will have access to Tesla certified technicians, despite the fact that we do not have a store in the immediate area. By the end of this year, over 85% of all Model S reservation holders in North America will be within 50 miles of a Tesla Service Center. 92% will be within 100 miles. Service is a top priority at Tesla and always will be.
At Tesla, we will continue to focus on the future and the future of your children, grandchildren and their children. In order to accelerate the adoption of EVs, we must be able to create and execute a business model that allows us to advance the knowledge of EVs in a convenient, accessible, no pressure environment.
Via the Tesla Blog
Image Courtesy of Discover Magazine