Tesla CEO Elon Musk Willing to Take Auto Dealer Fight to Federal Level
April 16, 2013 12:13 PM
comment(s) - last by
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 fo
r 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.
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RE: Pretty pathetic
4/17/2013 9:28:26 AM
I can see some of the arguments here, but let's not start off with false premises.
Car dealership DO NOT exist for the sole purpose of extorting money from you.
The serve to get products from the manufacturer to the consumer, to service the vehicles according to the manufacturers specification, to assure they adhere and keep adhering to the environmental guidelines, to handle factory recalls, and to repair defective or damaged vehicles in a timely manner with the appropriate parts and tools. Agreed some are better at this than others, but it is what they are for.
Let's also examine Mr. Musk's statement. He claims that, if his vehicles are to be soled through dealer franchises, they become a losing proposition.
I can, however, not determine from the article why he deems this to be so. I can guess at the reason : his EV's are so expensive to produce at this time that adding a dealer overhead would make them so expensive they would become unsellable. This may be true at this time. If you make 500 cars a month, and if we make this -for the sake of argument- 10 cars per US state (I said : for the sake of argument, didn't I ?) and he would have to commission 5 dealerships per state, how many cars would they effectively be able to service every month ? Do the math. It can't possibly work. Even if they had enough reserves to to tie them over for one year they'd go bust the second.
Even if he used existing dealers, they would have to invest in training, tools, dedicated workstations, spare parts inventory, etc, for what ? 4 services a month whey they have a really busy month ? Again, do the math.
So how does Mr. Musk envision this ? Or did he 'forget'? It's called 'the cost of doing business'. Surely he budgeted for this ?
Or does Mr. Musk have other reasons for making his statement ? I would like to know them.
RE: Pretty pathetic
4/17/2013 6:53:44 PM
Landiepete I want to say thank you! You have kept a level head and shared some very good points to be considered. I usually hear a lot of arguments against Musk on this topic. But most can say nothing relavent/convincing besides just saying he is wrong, with nothing of substance to back it up. So thank you! But I do question a few things you wrote above…. Why wouldn’t Tesla be able to offer the services you mention that the dealers can offer, like service to the manufacturers’ specification, assure they adhere to environmental guidelines, handle factory recalls, repair defective or damaged vehicles in a timely manner with the appropriate parts and tools? Tesla has a service team, which at this time, comes to your home and provides most of these services at your home. And he is trying to change the laws so he will be allowed to have service centers that can do warrenty work to the spects you mention. That is one of the things the curent laws restrict him from being able to do.
Musk is trying to do this (“making his statement”) because at this point most dealerships do not favor EVs. And so for that reason alone they would not try to sell them to customors. Where is their incentive to sell an EV over an ICE? It certainly isn’t in the fees to be charged at a later time from their service centers, which won’t be needed as offten with EVs.
If links can’t be showen please search for the video entiteled “Elon Musk: The TT Interview”. I believe he addresses a lot of your ligitiment concern within this short video.
RE: Pretty pathetic
4/18/2013 7:15:09 AM
I've just saw the clip you posted, thanks. Unfortunately, I still don't see a valid argument from a consumer point of view.
Apart from problems that will arise from his proposal (when dus a start-up loose it's start-up status ? Even worse, how does a start-up that becomes a no-startup-any-longer suddenly afford a state-wide dealer network ? Aren't they just postponing the problem ?) I'm trying to imagine what would happen if my Tesla broke down (I'm actually considering purchasing one, so it's not too far from the realm of the practical).
Imagine this : you're driving along minding your own business, and your car breaks down. You pull up on the hard shoulder, and ring the AA or your insurance. A while later a truck arrives. A guy opens your hood, can't fix it, and tows your vehicle to the nearest dealership where you are handed the keys to a loaner while they fix your car. Two days later you get a phone call to pick up your car, drive over, hand them the keys to the loaner, pay yur bill (OR NOT)and you're on your merry way.
Now, same deal, your Tesla breaks down. You call the AA. No you don't. They know nothing about EV's (yet). You call Tesla. How many intervention units do you have in your state ? Two ? Four ? They tell you the nearest one is 150 miles away and has two more appointments that day. They send a tow truck. The car is sent back to your home, because there's no dealers. The day after the Tesla truck arrives at your door. You've taken the day off, because they couldn't tell you what time they would be arriving. But you weren't going anywhere anyway, since the Tesla's dead. The tech can't fix it, it needs to go back to the factory ? You get a voucher for the rental (the tow guy couldn't give you that, because 'Tesla has to verify your vehicle is indeed unfixable in situ'. You ALWAYS have to wait for the Tesla truck. Reverse thing happens when your car is eventually fixed.
I'm just pulling this out of my behind, of course, but I haven't heard Mr. Musk elaborate on how he will handle these situations. And as long as he doesn't I'm sceptical.
"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997
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