Tesla Sales Model Upsetting Traditional Auto Dealers

By:  Bob Adelmann
03/24/2014
       
Tesla Sales Model Upsetting Traditional Auto Dealers

Tesla Motors' business model of selling its electric vehicles directly to consumers is being opposed by auto dealerships.

In Washington State, Elon Musk, the founder and CEO of Tesla Motors, has created a way to sell his cars without having to go through a car dealer by persuading the state legislature to carve out an exception to the law just for his company. Along the way, he has made it harder for any new car company to follow his lead in selling “factory direct” to consumers. That’s a deal existing car dealers in Washington can live with.

Musk has been characterized as the Steve Jobs of the car business, even though he cut his teeth and made his fortune (estimated to be around $12 billion) through three other companies he founded or co-founded: Zip2, PayPal, and SpaceX. But he has been putting his heart and soul — and his money — into Tesla ever since founding it 10 years ago, building a company which he says is aimed at offering electric cars at prices affordable to average consumers.

His Tesla Roadster’s base price was $109,000 while his Model S (shown in photo) is a little cheaper, coming in at about $57,000. His company sells fewer than 25,000 units worldwide, but hopes — indeed, plans — to bring down the cost of production over time so that it can become everyman’s EV. He’s following the Silicon Valley “model,” where initial offerings of such items as cellphones and laptops are highly priced but see great reductions in price when sold in volume, eventually making them affordable to anyone. His next offering, for example, is an SUV codenamed BlueStar which is expected to sell for around $30,000.

One way to keep costs down is reflected in Musk’s business model: selling directly to consumers with no intermediate dealers paying their salesmen commissions and hoping to make additional profits through their service department. With Musk’s determination has come the realization that the traditional car dealer sales model is being threatened. Using Nicola Tesla’s invention of the alternate-current (AC) motor, Musk has built a car that doesn’t need servicing: no spark plugs, no oil changes, no “regularly scheduled maintenance.” Selling them through galleries in shopping malls which provide information but no sales people keeps marketing costs to a minimum.

But victory in Washington is a rare one for Musk, who has had much greater difficulties with car dealers in Texas and New Jersey accepting competition that ultimately could threaten their very existence. As Tammy Darvish, a vice president of the Darcars Automotive Group in Silver Spring, Maryland, said, “Our issue is not with Tesla itself. It’s with [their sales] model. How can we as auto dealers compete with manufacturers in the same market when we are completely dependent upon them for our inventories?”

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