Tesla Motors (NASDAQ:TSLA) has been met with varying degrees of enthusiasm in various states nationwide over its “controversial” business model that has pitted automotive dealers against the electric vehicle maker. The issue was recently thrust into the spotlight after New Jersey, in what Tesla described as “back-room dealings,” unanimously voted to ban Tesla’s direct sales method beginning on April 1.
Arizona, on the other hand, looks like it could pass a legislative bill that would allow Tesla to continue selling its vehicles through company-owned locations, in a move seen as a sort of courtship for Tesla’s Gigafactory bid, which is expected to bring huge economic benefits to its hosting state.
While it appears to be a black-and-white issue in many places, recent results from Washington state indicate that there may be a happy medium between the extremes. A bill set forth in Washington’s capitol of Olympia originally included restrictions placed on Tesla’s ability to sell in the state, though a group of bipartisan legislators were able to strip the bill of its anti-Tesla content so the company wouldn’t be forced to conform to the traditional dealer model.
However, the resolution in Washington was unique in that it offered some peace of mind for the dealers, as well. Reuters reports that in the revised language, the bill would also strengthen the existing rules that require other automakers to sell through their stores. On the surface it seems like Tesla is being given a free pass, but it’s important to remember that the fight is between Tesla and the dealers — not Tesla and other manufacturers. Everyone walked away a winner, at least from this round.
“Our issue is not with Tesla itself, it’s with the model,” said Tammy Darvish, a vice president at Darcars Automotive Group in Maryland, to Reuters. She bought a Tesla of her own, using familiar rhetoric that has become the soundbite for the dealer efforts to outlaw Tesla’s direct to consumer approach. “How can we as auto dealers compete with manufacturers in the same market when we are completely dependent upon them for our inventories?”
Over the years, dealers have carved out a comfortable place between the manufacturer and the consumer on the grounds that automakers will then work with dealers, not compete against them. However, dealers make much of their money from services offered after purchase — most of which are not required on an electric car like the Model S. Tesla contends that conforming to the dealer model wouldn’t be a successful venture, since there wouldn’t be enough cash flow to keep a Tesla dealer afloat.
Even CEO Elon Musk, in a blog post on Tesla’s website last week, acknowledged that dealers have their place in society, though he maintains that it’s just not a good fit for Tesla. “Franchisees … invested a lot of their money and time in building up the dealerships. That’s a fair deal and it should not be broken,” he said. The concerns that dealers put forth — that other automakers will abandon the model in favor of direct sales — is also an understandable one; Reuters reports that some 17,000 businesses rely on the dealer model.
Perhaps Washington’s solution is the way forward: Protect the old while offering encouragement to the new. However, it may not be long before other automakers challenge the new laws, questioning why Tesla was able to get an exemption from the model that they are now bound by.