Tesla vs. the Government

While Tesla Goes Electric, Everyone Else Goes Postal

People are already lining up in droves, waiting to get their hands on Tesla’s supposedly “affordable” new mid-size sedan, the Model 3. As the slightly conspicuous name would suggest, Tesla is hoping that the price of its car (around $35,000 US) will steal some 3-Series customers, as well as much of the premium entry-level sedan market. The implications are profound: get it right, and Tesla transforms from a niche-market luxury car maker into a mainstream household brand. In fact, an affordable and easy-to-live-with Tesla could give the rest of the car-buying industry a massive headache. In fact, American automakers are starting to panic, and have used their significant political influence to try and save their way of life.

 

What Makes Tesla So Special?

It would be far from a stretch to call Elon Musk the Henry Ford of the 21st century.

It would be far from a stretch to call Elon Musk the Henry Ford of the 21st century.

Tesla Motors is a rebel in the automotive industry. Of course, much of this status has to do with their extremely progressive, mind-bendingly capable vehicles that have zero emissions and can cream sports cars in the quarter-mile. Tesla has gotten as near to reinventing the modern automobile as anyone else in history. And, so long as their patents hold up for long enough, Tesla Motors is in a prime position to become the next great automaker.

But their product is only half of the story. The other half is in the way that they sell it.

 

So You Wanna Buy a Tesla, eh?

A Tesla Store in the Westfield Mall in London.

A Tesla Store in the Westfield Mall in London.

Normally, when you want to buy a car (in North America, at least), you go to a car dealer. There, you browse the lot, looking for the car that has most of the features and specifications that you want. Then, once you have found that perfect ride (or built it using an online configurator), you then have to deal with a salesman, who will try and appease you by adding in a bunch of extra features (floor mats, mud guards, chrome bug deflectors, etc.). You also run the gauntlet of financing options, cash incentives, and trade-in deals, on top of the often-unpleasant haggling process. After all that is said and done, the automaker gets their money back, the dealer collects their commission, and you have the keys to your shiny new whip.

Buying a Tesla, on the other hand, is a completely different process. You don’t go to a dealership, you go to a “Tesla Store”. It seems awfully similar to an Apple Store, and in fact it is, but we’ll get to that later. They have almost no inventory—just one or two cars available in the showroom so you can see what’s what with the car. After you’re done sitting and playing with all the cool buttons and touchscreens in the demo car, the Tesla salesperson ushers you to a “design studio” where you get to pick and choose all of the features that you want on your very own Tesla. You see exactly how much everything is going to cost: no more, no less. After you are done creating your Tesla, you go and arrange your financing through one of Tesla’s financing plans, and the order gets sent out to Tesla’s Fremont, California Gigafactory. After about 4-8 weeks, your Tesla is delivered to you, straight from the factory.

 

Sounds Great. Who Could Possibly Hate It?

The Tesla sales model is leaving traditional car salesmen with no chill.

The Tesla sales model is leaving traditional car salesmen with no chill.

Of course, dealerships are not happy. The whole direct-sales approach is, naturally, a lot more pleasant than dealing with the dealer, so to speak. Not only that, but the traditional fat cat car dealer now loses out in the collection of commissions. As a result, the National Automobile Dealers Association (NADA) has lobbied state governments to ban Tesla from competing in the marketplace.

Their argument? Firstly, NADA claims that, by competing with one another on price and value, that car dealerships are actually good for the consumer as the free market keeps prices at an equilibrium. This way, it is argued that a car cannot charge too much money for a car because he will not be able to sell it. Personally, I see Tesla’s strategy as eliminating the middleman—which could mean better prices for the consumer.

Secondly, NADA claims that Tesla’s pricing strategy is anti-competitive. In a sense, this is true. Tesla basically holds the price of the car constant—the dealer is not allowed to change it or offer any discounts. Back to the Apple Store analogy that I mentioned earlier. When you go to an Apple Store, or even buy an Apple product at a different store, you see the price printed on the box. And, if you’ve ever asked the salesperson for a deal, they’ll tell you that they’re only allowed to sell Apple products at the price Apple makes them sell it for. This is exactly what happens in a Tesla Store, and it’s called Colgate pricing. It is legal as long as the manufacturer makes it clear to the retailer what the terms and conditions are. However, if you can afford a Tesla, you likely have all the technology you need to do your own research into what new cars sell for. You think the Tesla is too much money? Go buy something else. It’s as simple as that.

 

U.S. Government--Do the Right Thing!

The biggest danger to Tesla is American politicians. Really.

The biggest danger to Tesla is American politicians. Really.

The way I see it, the direct sales approach is no more or less beneficial to you and I, the consumer. But we don’t have the political power that the NADA does. As a result, Tesla’s direct sales have been banned in Colorado, Texas, Arizona, and New Jersey. Several more states are pushing to ban the practice and keep the new car market squarely in the hands of dealerships. In short, they want drive Tesla out of the U.S. market. What we are seeing here is no different from taxi companies fighting local governments to ban Uber—and the public response ought to be the same. The way I see it, the car dealers, like the taxi companies, are fighting in their own self-interest to save their way of life, instead of trying to adapt to a changing marketplace. And, if they are successful, the biggest casualty could be one of the most ingenious automakers the world has ever seen.

For more, check out: http://finance.yahoo.com/news/how-to-buy-a-tesla-152044730.html
and http://www.forbes.com/sites/jeffreydorfman/2014/03/22/free-markets-tesla-battles-car-dealers-over-right-to-sell-cars/#269f7c6e4004