Tesla Attacks Traditional Dealership Business Model In A Jurisdiction Near You


Once upon a time, consumers shopped primarily at the friendly neighborhood stores within their community. The introduction and development of the Internet had something to say about that though. Fast forward to present day and there are now newer and more impersonal ways to shop for and purchase various goods and services.

In buying cars, however, these new ways to shop have not been as common primarily because laws in many states require consumers to purchase their cars solely from local, independent auto dealers. Nevertheless, Tesla Motors Inc. (“Tesla”), with little regard for these long running regulations, has been out to turn the car marketing world on its head by attempting to do away with the franchised dealership system and change forever the way people purchase vehicles in the U.S.

In different parts of the country Tesla is pursuing a direct-to-consumer sales strategy that does not rely on the local, independent auto dealers. Consequently, many state and local regulators are fighting back against Tesla’s direct purchasing efforts. For example, recently the Ohio Auto Dealers Association and Telsa, following weeks of negotiations, agreed to a 3 store limit for Tesla in the state of Ohio. Further, auto dealer lobbying groups in New York reached a similar agreement with Tesla which allows the electric-car maker to keep its five company-owned stores in the state.

Unfortunately, the Federal Trade Commission (“FTC”) believes any restrictions placed against Tesla is bad policy. The FTC argues that American consumers and businesses benefit from a dynamic and diverse economy where new technologies and business models can respond to unmet or under-served consumer needs. However, the FTC fails to appreciate that the traditional dealership business model of automakers contracting with franchised dealers to sell and service their vehicles exists for one simple reason: it’s the most efficient and cost-effective way to do so.

Nevertheless, efforts to litigate, legislate, and regulate to eliminate Tesla’s threat have resulted in a battle, jurisdiction-by-jurisdiction, for Tesla to sell its automobiles directly to consumers. As a result, automotive dealers should be on the lookout and be prepared to defend against Telsa’s direct-to-consumer sales strategy sooner rather than later.

See upcoming newsletters for developments from the battleground involving Tesla’s direct-to-consumer sales strategy pursuits.