Disrupting the Industry, the Present: Tesla
Wednesday, September 16, 2015
Dealerships know better than anyone that auto manufacturers don’t sell vehicles—franchises do. That is, unless you’re Tesla.Tesla has built their brand around challenging auto industry traditions. They have repeatedly made it clear that they don’t just want to build the best electric cars, they want to build the best cars, electric or otherwise.And in many ways, they have done just that. Tesla cars have outperformed gasoline vehicles in speed races, including brands like Mercedes-Benz and BMW, yet Teslas can also drive long distances on a single charge.However, Tesla hasn’t reached widespread distribution quite yet. And they’ve decided that to get there, they want to flout tradition one more time.How?Tesla does not want franchises.A New Business ModelIf you’ve ever seen an Apple store, then you already have some idea of what Tesla is going for with its sales model. They don’t a franchised dealership with stereotypical salespeople that show customers around a lot and press them to “buy today.”Tesla is implementing a direct sales method, with retail stores owned by the manufacturer itself. They are putting those stores in high-traffic areas that will encourage walk-in customers, and they are not even trying to sell cars on the spot.Tesla’s direct sales stores take a different approach to car sales than has ever been seen before. The store’s representatives do not work on commission, and their job has more to do with education than persuasion. They aim to introduce customers to the idea of electric vehicles and give them a taste for the cars’ performance.Since Tesla vehicles are currently ordered well into the future, sales representatives in Tesla stores couldn’t immediately sell vehicles if they wanted to—all they offer is a reservation.The HoldupElon Musk, Tesla’s CEO, thinks his new business model is superior to traditional franchises for several reasons, most importantly these two:1) OEM-owned stores don’t have mixed lots with both electric and gasoline vehicles, which means less competition from traditional gas guzzlers.2) Tesla-owned stores give Tesla the ability to reach new customers before they’ve chosen a specific vehicle. Musk claims most customers know what make and model vehicle they want before they ever arrive on the lot. Tesla stores would enable the company to reach a vital undecided audience.So why can’t Tesla open its retail stores in peace?You probably already know why: laws. Franchise laws have been in place for decades, and they dictate that car manufacturers cannot sell directly to consumers. There are also several franchises that would like to sell Tesla cars at their dealerships. And they’re fighting in court for the right to do so.The Possible SolutionTesla originally called its direct sales approach “vital” to its business model. However, as time has gone on, it seems the company has accepted that it might be difficult to fully implement that dream.Lawsuits and state regulations have limited Tesla’s ability to open new stores. Many experts say the company would also find it difficult to reach as wide an audience as they want with OEM-owned stores alone. Franchises offer Tesla existing venues and ready-made distribution, which significantly cuts down on costs.Elon Musk has hinted that Tesla might eventually take a hybrid approach to sales: some retail stores, some franchised dealerships.What We Can LearnEven if Tesla resorts to a hybrid approach, their concierge-level retail stores have already shaken up auto industry traditions. If Tesla opens the door to direct sales from auto manufacturers, might other OEMs jump on the wagon? Would the laws change to allow them to do so?And if multiple OEMs do eventually take the direct sales plunge, what would that mean for consumers? Fewer advocates for them against the manufacturer, or would fewer franchised dealerships just be cutting out the middleman?