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Print 80 comment(s) - last by Mint.. on Apr 20 at 12:04 PM

He'll either lobby Congress for legislation or file a federal lawsuit

Tesla CEO Elon Musk is determined to win the fight against auto dealers and sell his company's vehicles directly to customers, but if he doesn't succeed at the state level, he's willing to make it a federal case. 

"If we're seeing nonstop battles at the state level, rather than fight 20 different state battles, I'd rather fight one federal battle," said Musk.

According to Musk, he will likely take one of two approaches if it comes down to a federal matter. He will either lobby Congress to pass legislation for the direct sales of EVs made by startup companies like Tesla (and tie it to an energy or transportation bill) or file a federal lawsuit to fight the state restrictions as unconstitutional violations of interstate commerce.

However, The National Automobile Dealers Association (NADA) said it will continue to defend franchise and consumer laws in the states.

"NADA will vigorously defend the franchise system," said David Westcott, chairman of the National Automobile Dealers Association. "A better option for Mr. Musk is to take advantage of the dealer network that already exists."

Musk has been pushing support for a recent bill in Texas, called House Bill 3351. This would allow distributors and manufacturers of electric vehicles (EVs) only to sell directly to customers without the use of dealerships. 

He has gone as far as offering to build a second manufacturing plant in Texas, and is even trying to appeal to Texas consumers by discussing a design for an electric pickup truck that would be stronger than any current gasoline truck.


In addition to Texas, Musk has had issues persuading other U.S. states to allow the auto startup to sell its cars directly. Some of its problem states include Colorado, Massachusetts, Minnesota, New York and Virginia. 

Musk could have a huge fight ahead, though. NADA said that 48 states have some sort of restricition on factory-owned dealerships. Musk went on to say that about 20 of those have restrictions that would make his business model difficult while about six others have restrictions that would make it extremely difficult. 

Musk has called the new Texas bill (and this overall business model of selling directly) a "life or death" situation for startups like Tesla. 

“For us this is life or death,” said Musk. “If we can’t go direct we will not be able to sell cars.”

In the past, Musk has said that he's open to a dealership model at some point when sales increase, since dealerships do promote competition and keep prices down. But at a startup level, he said this type of model isn't the best route. 

Tesla currently sells about 10,000 cars in North America, where about 1,500-2,000 are sold in Texas. 

Tesla is shipping over 500 Model S EVs weekly, and recently reported that the company is now profitable thanks to the Model S exceeding sales targets. Tesla Model S sales reached 4,750, which topped the sales outlook of 4,500 posted in the February shareholder letter.
 
In addition, the automaker is partnering with Wells Fargo and U.S. Bank to offer customers more financing options for Tesla’s vehicles. 

Source: Automotive News



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RE: Pretty pathetic
By Solandri on 4/16/2013 2:28:24 PM , Rating: 2
Cars are something you purchase once every 5-10 years, right? By the time you want to buy a new one, all the models and prices and a fair amount of the technology have changed. Consequently, it's difficult for any individual buyer to accurately gauge the actual value of a car. On top of that, people tend to "fall in love" with one particular make or model.

That type of situation is vulnerable to the manufacturer artificially inflating prices. If all Fords are sold directly to individuals, and Ford is in charge of direct pricing, and the individuals don't really know the value of the cars, it's pretty easy for them to ratchet up the price without the individuals figuring out they're being ripped off.

OTOH if you insert a middleman who buys and sells a wide variety of cars every day, he has the information and the experience to determine when a car is overpriced in comparison to the competition. He'll be able to detect artificially high prices long before individual buyers ever could, and due to his volume of purchases he'll be in a better position to call the manufacturer out on it and negotiate a lower price. So it's possible that the car dealers are actually helping the market.

Middlemen aren't always a bad thing. If they insert value into the system (added features, marketing expertise, better pricing information, etc), they can actually be a good thing for the market. The hammer manufacturer is really good at making hammers, but lacks market estimation and distribution experience. So they sell to a distributor. The distributor is really good at estimating market demand and transporting hammers across the country, but they lack retail sales experience so they sell to retail stores. The local hardware store is really good at retail sales, but lacks the skills and knowledge to actually use hammers to build carpentry and houses. The contractor has those skills, so they buy from the retail store.

Technically the distributor and hardware store are middlemen, but they actually make the system more efficient by providing valuable services. If you eliminated them from the market, prices would actually go up because distribution and marketing would have to be handled by the manufacturer. Smaller manufacturers wouldn't be able to do that, so they'd drop out of the market. The few remaining manufacturers would face less competition, and they'd ratchet up prices. Net result is the price the contractor pays for a hammer would go up because you eliminated the middlemen.

I could see an argument that the Internet now allows individuals to compare car prices as well as a dealer. But online shopping works because they stores like Amazon use UPS as their distribution system. Last I checked, UPS doesn't deliver cars from the factory to the end buyer. So it seems to me those car dealers you hate are still adding value by estimating demand and telling manufacturers how many cars to send where.


RE: Pretty pathetic
By FITCamaro on 4/16/2013 2:50:32 PM , Rating: 1
Not sure where you live but more people lease today. Maybe not Tesla's but in general.


RE: Pretty pathetic
By Mint on 4/17/2013 10:22:59 AM , Rating: 2
Maybe more than they used to, but it's still only ~25%.

Leasing is a good model for EV to sell to consumers, especially the low end ones. It illustrates the true monthly cost, and it's easy to compare fuel costs that way. That's when $199/mo for a Leaf plus ~$40/mo for electricity looks very attractive compared to any other car.

A big chunk of the initial cost becomes the manufacturer's risk, since the consumer has the option to walk away after three years. If the battery is of good quality, then the manufacturer will be able to afford a solid warranty for off-lease vehicles and keep selling them for a premium over gas cars that are more costly to fuel and maintain.


RE: Pretty pathetic
By 91TTZ on 4/16/2013 4:10:58 PM , Rating: 3
quote:
Cars are something you purchase once every 5-10 years, right? By the time you want to buy a new one, all the models and prices and a fair amount of the technology have changed. Consequently, it's difficult for any individual buyer to accurately gauge the actual value of a car. On top of that, people tend to "fall in love" with one particular make or model. That type of situation is vulnerable to the manufacturer artificially inflating prices. If all Fords are sold directly to individuals, and Ford is in charge of direct pricing, and the individuals don't really know the value of the cars, it's pretty easy for them to ratchet up the price without the individuals figuring out they're being ripped off.


How would this differ from any other product? You would comparison shop like you do with anything else. TVs, computers, used cars, food, furniture, etc. Why are all these products not marked up to insane prices? Because nobody would buy them.

With just about any product you're going to have competition and each manufacturer needs to find ways to undercut their competition. Having a middleman that also needs to make money can only serve to raise the price.

Also, nobody is proposing that we abolish all car dealers. They could still exist, they just won't be required to exist by law. If you want to buy a car at a marked-up price from a dealer go ahead. Look at the used car market. There are dealers for used cars but you don't have to go through a dealer. You can buy a used car from anyone. I could sell you my used car.


RE: Pretty pathetic
By Mint on 4/17/2013 12:19:45 AM , Rating: 2
quote:
Also, nobody is proposing that we abolish all car dealers. They could still exist, they just won't be required to exist by law.
The problem is that they keep disappearing as soon as manufacturers start selling direct. A person goes to a dealership to test drive a couple cars, then makes his purchase direct, and the dealerships go out of business.

Then people who already bought cars from that manufacturer have few places left to bring their car for repair. New buyers lose a mechanism for comparison shopping, which is absolutely fundamental for a competitive and efficient market.

Direct selling for computers or clothes or whatnot is a little different than for cars.


RE: Pretty pathetic
By Dr of crap on 4/17/2013 1:08:37 PM , Rating: 2
No it's not. Might be for some, and works for a lot of others.

A lot of people search online, find what they want and prices that they should pay and THEN go into the dealership - ummm sounds like electronics and Best Buy doesn't it?


RE: Pretty pathetic
By Mint on 4/20/2013 12:04:05 PM , Rating: 1
You just proved my point with electronics. Retail is getting hammered by online sales (which are just a thin layer away from direct sales). Circuit City went bankrupt, BestBuy is on its way.


RE: Pretty pathetic
By Kazinji on 4/16/2013 8:38:42 PM , Rating: 2
OTOH if you insert a middleman who buys and sells a wide variety of cars every day, he has the information and the experience to determine when a car is overpriced in comparison to the competition. He'll be able to detect artificially high prices long before individual buyers ever could, and due to his volume of purchases he'll be in a better position to call the manufacturer out on it and negotiate a lower price. So it's possible that the car dealers are actually helping the market.

I argue with a lot of that, but prices for cars are what your willing to pay. 100k Porsche Cayenne used are barely a 1/3 of that. Used Roadster can prob be had for a bit as there sold out in US. Middleman often tack on extra cost because it's rare even if it's new. Why? because they can. Dealerships that take advantage of this are prob pissing off customers which complain to Tesla.


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