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Tesla Model S
A North Carolina House committee denied a bill that tried to stop Tesla from selling directly to consumers

Tesla Motors landed a major win in North Carolina this week when the state threw out a bill that attempted to block the automaker from selling its vehicles directly to consumers

A North Carolina House committee denied the bill Tuesday, which would have banned Tesla from selling its Roadster and Model S vehicles to consumers instead of auto dealerships in the state. 

Also, Sen. Bill Rabon (R-Southport) said a separate bill -- which would update franchise dealer regulations -- could be rewritten in such a way that Tesla's business model could be protected. 

The Senate's Commerce Committee approved the bill to kill Tesla's anti-dealer model in May. The bill was unsurprisingly backed by the North Carolina Automobile Dealers Association (NCADA). 

North Carolina Governor Pat McCrory and House Speaker Thom Tillis took test drives in the Model S back in May and were reportedly thrilled with the experience. 

Tesla CEO Elon Musk has been fighting for the right to sell his clean vehicles directly to consumers without having to use auto dealerships as middlemen. However, auto dealers have been furious about this model because it takes business away from them.

Musk said he is open to a dealership model at some point when sales increase, since dealerships do promote competition and keep prices down. But that time isn't now. 

Back in April of this year, Tesla CEO Elon Musk openly fought for a Texas bill that would cut out the use of auto dealerships. The bill -- House Bill 3351 -- would allow distributors and manufacturers of electric vehicles (EVs) only to sell directly to customers without the use of dealerships. Musk even said that if the fight for the Texas bill came down to a federal matter, he would 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.

Tesla CEO Elon Musk

However, Tesla lost this fight in both Texas in Virginia. 

But Tesla has been successful in other states, such as New York, where a pair of bills (referred to as A07844 in the Assembly and S05725) tried to make it illegal to license -- or even renew licenses -- for all Tesla Stores within New York state borders. These bills were killed off on Monday. 

This latest win in North Carolina further proves that Tesla is a force to be reckoned with in the American auto industry. The company was approved to receive a $465 million loan from the U.S. Department of Energy (DOE) in June 2009, which was part of the Advanced Technology Vehicles Manufacturing program. The loan was to be repaid by 2022, but in March of this year, Tesla received permission to pay the loan back five years early by mid-2017. 

However,  Tesla managed to repay the whole sum last month -- nine years earlier than expected from the original 2022 due date. This was mainly due to its decision to issue more stock the week before. Tesla said it wanted to sell about $830 million in shares, and use $450 million in convertible senior notes (which are due in 2018) along with sales of 2.7 million shares (valued at about $229 million at the time) to pay back its federal loan. This is an especially crucial detail in Tesla's history, considering other plug-in hybrid electric automaker Fisker Automotive (which also received a DOE loan) has failed miserably

Before that, Tesla started shipping 500 Model S sedans per week starting in March of this year, exceeding the sales outlook of 4,500 posted in the February shareholder letter. In fact, Tesla managed to sell 4,900 Model S sedans in the first quarter. The automaker plans to deliver 21,000 total for the year, which slightly exceeds previous forecasts of about 20,000. 

For Q1 2013, Tesla reported a net income of $11.2 million (a huge increase from an $89.9 million loss in the year-ago quarter). Excluding certain items, Tesla's profit came in at 12 cents a share, which was a boost from a loss of 76 cents a share in Q1 2012. Analysts expected a profit of about 4 cents a share. Revenue also saw a huge year-over-year boost, totaling $562 million (up from $30.2 million in the year-ago quarter). 

On top of profitability and being debt-free, Tesla has been working hard to push new tech in the EV sector, such as its recent battery swap tech that takes only 90 seconds to complete and costs $60-$80. This is meant to extend range when there isn't time for a full recharge on the road. Tesla realizes that easing customer worries associated with EVs will lead to increased sales, and it seems to be working for the company so far. 

At present, Tesla has only sold about 100 vehicles in North Carolina. 

Source: Autoblog Green

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Why the Fight?
By Reclaimer77 on 6/27/2013 3:25:47 PM , Rating: -1
From a business perspective I simply do not understand Musk's refusal to sell his vehicles by traditional means. Can someone explain what the big problem is?

People don't buy their new vehicles "direct", it's just not how it's done. People go to dealerships. I'm not saying it's right or wrong, I'm not defending this law or that, I'm simply stating the obvious fact.

I would think if Musk really wanted to mainstream his car company, and be more competitive with traditional brands, he would WANT highly visible and attractive Tesla dealerships out there for people to see. Not everyone out there is intimately familiar with the Model S, after all. Dealerships can help people get their proverbial feet in the door.

However regardless, one good thing is Musks fight is highlighting an important issue. I don't think the automotive business should be bound by law to sell their products this way or that. It should be up to them and them alone what method they choose.

RE: Why the Fight?
By Cheesew1z69 on 6/27/2013 3:34:36 PM , Rating: 1
I am assuming here, but perhaps he doesn't want third party sellers setting up dealerships but instead Tesla owned stores?

RE: Why the Fight?
By othercents on 6/27/2013 3:47:15 PM , Rating: 2
Because it doesn't give them a good pricing model due to limited supply and the extremely small financial return. Tesla would use the dealership model when they are building cars for everyone vs the high end.

RE: Why the Fight?
By maugrimtr on 6/28/2013 8:24:24 AM , Rating: 3
Actual reality - there are probably no Tesla dealerships. If Tesla sold exclusively through dealerships, they would be competing for space and attention with established brands. The dealers would maybe stick a Tesla out in a forecourt.

Tesla are a new entrant to a market. All they want to do is eliminate a barrier to entry by having their own showrooms and such. The idea that this could ever be "illegal" means someone is working really hard to regulate a market in all the wrong ways.

Screw the dealers. They are free to get their own Tesla models and compete for business if they want.

RE: Why the Fight?
By MindParadox on 6/27/2013 3:35:28 PM , Rating: 5
Because dealerships increase costs, simply by inserting themselves in between the manufacturer and the consumer?

Simple logic here, the more links in a sales chain, the more expensive the item becomes, because every link has its own overhead to make up

so say the car from the manufacturer costs 12,399
they sell it to the dealership.
The dealership then has to make a minimum of 12,399 on the car simply to make back what it paid the manufacturer.
then they are going to add all kinds of markup on that to cover the overhead(employees at the dealership, owners' salary, etc)

final cost to the consumer? on average, around 18k or more on a car that cost the dealership 12k

RE: Why the Fight?
By Reclaimer77 on 6/27/2013 3:45:07 PM , Rating: 1
Because dealerships increase costs

More than a long and drawn out legal fight in all 50 states??

Look I'm not defending the status-quo, but honestly, this is the classic "uphill battle" if there ever was one.

And let's say he wins 50% of his battles. That still leaves MILLIONS of Americans who have no realistic convenient option to view, test drive, and purchase his vehicles.

However your explanation was excellent, and I thank you.

RE: Why the Fight?
By Guspaz on 6/27/2013 6:05:56 PM , Rating: 5
There are a few problems:

1) The margin on electric cars is much lower than gasoline cars, so dealers would have an incentive to try to sell gasoline cars instead of electric cars

2) Dealers make most of their profit from maintenance, and electric cars tend to require less maintenance since they have less moving costs

The problem is not that dealerships can't work for Tesla, just that they can't work right now. Only when electric car production costs have been driven down (increasing margins) and consumer demand is high enough to negate the maintenance disincentive will it be a viable option.

The dealers don't actually care about Tesla selling their cars. Tesla is such a tiny portion of the car market that they're not even a drop in the bucket. What the auto dealers are worried about is that Tesla will set a precedent, and that somebody like Toyota or Ford or GM might start trying direct sales.

RE: Why the Fight?
By Rukkian on 7/1/2013 12:19:08 PM , Rating: 2
Most states have a provision that any manufacturer that sells less than a certain amount of vehicles (say 5k/month) do not need to have a dealership. This is due to the overhead that is involved if you are just a niche player (which Tesla is right now). The problem comes from the NADA trying to change the law in several places to force Tesla to use dealerships, and effectively insert a guaranteed middleman instead of allowing sales directly. In Texas, they already had something on the books, and Tesla tried to change it to allow them to sell direct.

I have no problem if car companies want to sell through dealerships, I just have a problem with government (of any level) requiring the use of a middle man. If I want to buy a car direct and save some money, I should be allowed to, if the manufacturer agrees.

RE: Why the Fight?
By subflava on 6/27/2013 4:03:41 PM , Rating: 2

An easy one is that would add unnecessary cost to the price of the car. They already have a high price on the car so they already have the task of convincing people it's worth it.

I think the most important reason is they'd relinquish control over their brand in terms of how and where the car is sold and marketed. If they were forced to work with dealers, wouldn't they have to wait for a potential dealer to agree to open one where they wanted?

Tesla would then also have to come to a contractual agreement with said dealer. Can you imagine how long and tedious that process would be? And they'd have to do this each and every time they worked with a new dealer...and maybe some dealers would agree to some terms and some would not, so you'd either have to manage varying agreements (and therefore introduce undesirable variability into the Tesla buying process) or try to force all dealers to the same agreement.

Again, it would slow them down, increase costs, dilute the brand...and what would the benefit be?

With the their current volumes and market position, it would make absolutely no sense to sell through the dealership system. It may be a different story when they get enough volume though.

RE: Why the Fight?
By DT_Reader on 6/27/2013 4:57:31 PM , Rating: 3
Because it isn't about setting up new Tesla dealerships, it's about existing dealers becoming Tesla dealers. The NADA doesn't want more members, they want to protect their existing members. Knowing this, why would Tesla want to join them? If you were Tesla, would you want a dealer who sells 1000 gas powered cars a month being the exclusive dealer for your electric powered car, with a potential market of maybe 4-5 cars per month? How much effort is that dealer going to put into selling Teslas?

Chevy dealers love the Corvette, not because they sell lots of Corvettes, but because Corvettes get people into the showroom. GM doesn't care, because either way those customers are buying Chevys. Using their Tesla franchise to get people into the showroom, then selling them a Ford, Chevy, or Toyota, may do the dealer a lot of good, but it doesn't do anything for Tesla.

RE: Why the Fight?
By cladari on 6/27/2013 8:37:49 PM , Rating: 2
If you sell 6 or 7 Tesla cars a year how much money are you going to invest in the tools and expertise to maintain them?

RE: Why the Fight?
By SublimeSimplicity on 6/28/2013 8:49:00 AM , Rating: 3
You hit on what I believe is the crux of the problem. Tesla dealers would mostly not be only Tesla dealers. They would also be owners of Chevy, BMW, Audi, etc dealerships.
Dealers make A LOT... and by a lot, I mean most of their money off of maintenance and repairs.

Do you know what the maintenance schedule is for a Tesla? Rotate the tires every 10k. There's only so much you can charge for that.

What's going to fail? The battery pack? Which have been shown to be replaceable by a robot in under 2 minutes. The motor? Those things that run non-stop in factories for decades?

Now if I'm a dealer, I'm not sure I'm going to steer customers looking to pay $60k-$100k on a Tesla to the Tesla's I sell, but probably to the other cars I sell. In fact I might run a constant shortage, never able to get those damn things in... destroying Tesla's image.

RE: Why the Fight?
By Masospaghetti on 6/28/2013 9:56:07 AM , Rating: 2
That, and I don't think dealers necessarily add to the buying experience.

I would rather buy direct and avoid the hard selling, ridiculous mind games that dealerships and salesmen use.

RE: Why the Fight?
By GotThumbs on 7/3/2013 11:53:32 PM , Rating: 2
This is exactly why I will never purchase a new car, nor will I ever purchase a vehicle from a dealer.

Dealers are the foundation for the bad taste in the word "Salesman".

My last 6 vehicles were all purchased from individuals or through eBay (last 3) and I have been very please with all of them. I still have the last 3 vehicles I purchased.

Dealers simply organized mafia and are for suckers IMO.

Best wishes,

"The whole principle [of censorship] is wrong. It's like demanding that grown men live on skim milk because the baby can't have steak." -- Robert Heinlein

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