Tesla’s Texas Dealership Battle

Tesla has a very unique way of selling its cars, as you may have learned by now. And something I didn’t quite catch until recently is that Elon Musk considers it a necessity to the growth and survival of his company. Why? Because there is (or, in Tesla’s case, would be) inherent bias in how typical auto dealers would try to sell (or not) electric vehicles. Basically, the point is this: conventional auto dealers rely, at the moment, on selling a high number of gasoline-powered cars (because that’s mostly what’s on the market). However, to sell EVs, they would have to explain their benefits compared to gasoline-powered, which would go against the majority of their fleet. From Musk himself:

“Our goal is to bring electric vehicles to the mass market by telling our story, educating the public about electric vehicles, and delivering the best car in the world,” said Elon Musk, Tesla Motors co-founder and CEO. “The ability to sell cars through Tesla-owned stores is important for sustainable transportation and is the best chance a new electric car company has of succeeding. Our sales model allows for innovative technology to be more affordable to the broader population in an unconflicted way, without changing the dealer model for gasoline-powered cars.”

Photo Credit: atmtx / Foter.com / CC BY-NC-ND
Photo Credit: atmtx / Foter.com / CC BY-NC-ND

And from a Tesla statement:

The Tesla sales and service model is based on direct customer relationships, without an intermediary licensed dealership. This is fundamentally different from the traditional dealership model just as an electric vehicle is fundamentally different from a gas powered car. Electric vehicles simply cannot be sold side by side with gas vehicles because they will always be a minority item in terms of sales and service volume. Existing franchise dealers have an inherent 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. Simple math shows no traditional dealer is incented to sell an electric vehicle with the same enthusiasm as the rest of their inventory.

Anyway, what’s all this got to do with Texas? Auto dealers in Texas (as in a few other places) are challenging the legality of a bill that would allow Tesla’s special shops/galleries to sell cars to customers. Even though Tesla’s galleries don’t do test drives and don’t include the cars, the auto dealers are threatened by the sales potential. Currently, in Texas, Tesla’s galleries don’t even have Tesla employees (the galleries are run by Tesla subsidiary Tesla Motors TX), and they can’t direct potential customers to any out-of-state stores. Tesla Motors TX can basically just send them to the Tesla website. It gets even more complicated than that. AutoblogGreen writes:

Tesla employees can’t be on hand when its cars are delivered in Texas and registering a new Model S sounds like a frustrating experience, if Tesla’s description is accurate, with the sales tax not being rolled into the financing payments. Oh, and there’s even a special subsidiary, Tesla Motors TX, with service centers in Austin and Houston that, “cannot advertise that they do warranty repairs nor can they discuss any additional repair needs or concerns with the customer. Tesla Motors TX then bills Texas Motors, Inc. for the work. If customers have additional warranty concerns, Tesla Motors TX cannot discuss them with the customer – the customer would need to call Tesla Motors, Inc. back and go through the process again.” Despite all the hassles, Tesla has delivered more than 400 Model S and Roadster EVs in Texas, “with more arriving every week.”

The new Texas bill is aimed at making it a bit simpler for Tesla to sell its vehicles to consumers. Here’s Tesla’s statement on the bill:

“The bills in question, House Bill 3351/Senate Bill 1659, filed by Sen. Craig Estes (R-Wichita Falls) and Rep. Eddie Rodriguez (D-Austin), would permit U.S.-based manufacturers of 100% electric- or battery-powered vehicles to sell directly to Texas consumers. It’s a very limited classification of exception to current laws and does not harm any existing dealer franchise.”

We’ll see what comes of it. So far, Tesla has had pretty good success in the courts and such. It has won other lawsuits where auto dealers challenged its model.