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Corporate strategy

Tesla Motors has an 80% degree of vertical integration in 2016 according to Goldman Sachs. The integration includes own sales channels and proprietary charging infrastructure among others, and the high degree is rare in the automotive industry, where companies typically focus on engine manufacturing and vehicle assembly.[1][2]

Some of Tesla's stated goals are to increase the number and variety of electric vehicles (EVs) available to mainstream consumers by selling its own vehicles in company-owned showrooms and online.[3]

Sales model

Tesla Motors operates more than 200 stores and galleries around the world, 120 of which are outside the USA. It owns the stores and sells directly to customers both in the non-US stores and via the internet.[4][5][6][better source needed]

US dealerships and automotive dealership disputes

Tesla gallery in Austin, Texas.
External image
image icon Map of direct automaker sales, regarding Tesla conditions

There are stores and galleries[7][8]—usually located in shopping malls—in 22 US states and Washington DC. Customers cannot buy vehicles from stores,[9][10][11] only from the Tesla Motors website.[12] The stores serve as showrooms that allow people to learn about the company and its vehicles. Some galleries are located in states with restrictive dealership protection laws which prevent discussing price, financing, and test drives, as well as other restrictions.

Tesla's strategy of direct customer sales and owning stores and service centers is different from the standard dealership model in the US vehicle marketplace.[13] Tesla Motors is the only automaker that sells cars directly to consumers; all other automakers use independently owned dealerships[14][15] (partly due to earlier conflict),[16][17] although some automakers provide online configuration and financing.[18][19][20] 48 states have laws that limit or ban manufacturers from selling vehicles directly to consumers,[21][22][23] and although Tesla has no independent dealerships, dealership associations in multiple states have filed numerous lawsuits against Tesla Motors, to prevent the company from selling cars. North Carolina and New Hampshire sided with Tesla, while Virginia and Texas sided with dealers.[24]

Countries other than USA do not have such laws protecting car dealership. The Federal Trade Commission recommends allowing direct manufacturer sales,[25][26] which analysts believe would save consumers 8% per purchase on average.[16][27] The National Automobile Dealers Association states that franchises (such as offered by its members) offer better value for customers than direct sales.[13][28]

Restrictive states

Texas

Texas law states "Except as provided by this section, a manufacturer or distributor may not directly or indirectly:(1) own an interest in a franchised or nonfranchised dealer or dealership;(2) operate or control a franchised or nonfranchised dealer or dealership; or(3) act in the capacity of a franchised or nonfranchised dealer. (Tex. Occ. Code Ann. § 2301.476) and "A motor vehicle shall not be advertised for sale in any manner that creates the impression that it is being offered for sale by the manufacturer or distributor of the vehicle. An advertisement shall not contain terms such as “factory sale,” “fleet prices,” “wholesale prices,” “factory approved,” “factory sponsored,” “manufacturer sale,” use a manufacturer's name or abbreviation in any manner calculated or likely to create an impression that the vehicle is being offered for sale by the manufacturer or distributor, or use any other similar terms which indicate sales other than retail sales from the dealer" (43 Tex. Admin. Code § 215.261).

These laws make it difficult to buy a car from Tesla Motors in person, at a Tesla Gallery. Thus, all Texas orders are taken via the internet or over the phone. Texas residents can still easily buy a car from Tesla, but the purchase is handled as an out-of-state transaction. This may mean that the loan will not include Texas state sales tax, which instead must be paid when the buyer registers the car with the state. Also, the buyer cannot have the car delivered to their home or office, but must pick it up from a Tesla Service Center in another state. In 2015, Tesla lobbied the Texas Legislature to modify the law[29] to allow Tesla to sell directly to consumers, and specifically allow Tesla employees to discuss "financing, leasing, or purchasing options" at the firm's existing stores in Austin, Dallas, and Houston.[30] Texas considering legislation to allow Tesla to operate in the state[31] but legislation was not passed.[32]

New Jersey

On March 10, 2014, it was announced that New Jersey Motor Vehicle Commission and Governor Chris Christie's administration would be holding a meeting to pass a new proposal into law. This new proposal, PRN 2013-138, was announced one day before it was to be put into law. Tesla Motors responded by saying that the proposal "seeks to impose stringent licensing rules that would, among other things, require all new motor vehicles to be sold through middlemen and block Tesla's direct sales model," and that "[Governor Christie's] Administration has decided to go outside the legislative process by expediting a rule proposal that would completely change the law in New Jersey."[33] The law was passed, and "Tesla will no longer [be able to] sell electric cars in New Jersey, effective April 1". Diarmuid O'Connell, Tesla Vice President of Business Development, said, "Worse, it has done so without any reasonable notice or even a public hearing."[34] Forbes contributor Mark Rogosky said, "The state's new rules protect its auto dealers from having to compete with Tesla's direct sales model"; he points out that this is a direct contrast from what Christie said earlier, "We are for a free-market society that allows your effort and ingenuity to determine your success, not the cold, hard hand of the government."[35] Kevin Roberts, a spokesman for the Christie administration, responded by saying "it was the [Tesla Motors] company, not the governor's office, that was attempting to bypass normal procedures.".[33][36] In March 2015, the ban on Tesla Motor's operations in New Jersey was lifted, but with restrictions (maximum of 4 locations, and 1 service center).[37]

Michigan

On October 1, 2014, Michigan House Bill 5606, drafted "to keep automakers from forcing dealers to charge different documentation fees to different customers,"[38] was amended with a section stating that a manufacturer shall not "sell any new motor vehicle directly to a retail customer other than through its franchised dealers." The word "its" was removed, which assumed the manufacturer already had dealerships. Both houses passed the revised bill the next day, with only one nay vote from Tom McMillin in either house of the Michigan Legislature. Tesla argued that the original law would have allowed them to sell, because they did not yet have franchised dealers.[39] On October 21, General Motors released a statement saying that governor Rick Snyder should sign the bill into law because "we believe that House Bill 5606 will help ensure that all automotive manufacturers follow the same rules to operate in the State of Michigan." The same day, Snyder signed the bill. Tesla responded to the GM statement by saying "GM distorts the purpose of the franchise laws which are in place not to cement a monopoly for franchised dealers, but rather to prevent companies with existing franchises from unfairly competing against them."[40] The law in Michigan even ban manufacturers from operating service centers.[41]

Others

West Virginia does not allow Tesla-owned stores or showrooms.[42]

Indiana allows manufacturer sales for 30 months, ending direct Tesla sales by the end of 2017.[43]

Tesla asked the Utah Supreme Court in 2016 to reverse a state decision banning direct auto sales.[44]

Permissive states

In September 2014, Massachusetts allowed Tesla to sell directly.[45] Georgia laws are favorable[clarification needed] to Tesla.[42][46]

In May 2015, Maryland approved, through House Bill 235,[47] direct Tesla sales to consumers beginning in October 2015, allowing four stores statewide. The legislation was crafted specifically for Tesla.[48][49]


References

  1. ^ Lambert, Fred (2016-02-26). "Tesla is now ~80% vertically integrated, says Goldman Sachs after a Tesla Factory visit". electrek.co. Retrieved 2016-03-31.
  2. ^ "Alternative Fuels Data Center: Developing Infrastructure to Charge Plug-In Electric Vehicles". afdc.energy.gov. United States Department of Energy. Retrieved 2016-04-10.
  3. ^ "Press Releases" (Press release). Tesla Motors. 2009-06-04. Archived from the original on 2009-06-11. Retrieved 2009-08-01. {{cite press release}}: Unknown parameter |deadurl= ignored (|url-status= suggested) (help)
  4. ^ "Does anyone know how many stores Tesla has over the years? • /r/teslamotors".
  5. ^ Number of Tesla Stores
  6. ^ List
  7. ^ "Tesla Accused of Operating Illegal Showrooms in 4 States". The Car Connection. Retrieved 2015-04-12.
  8. ^ Harry Stevens (2013-01-15). "Court Affirms Tesla's Right to Operate Company-Owned Stores". Triple Pundit: People, Planet, Profit. Retrieved 2015-04-12.
  9. ^ Rogowsky, Mark (2013-12-04). "Ohio To Tesla: We're Ignoring Our Whiny Car Dealers For Now, Come Sell Here". Forbes. Retrieved 2014-05-08.
  10. ^ Borchers, Callum (2013-11-20). "Tesla battles auto dealers on direct sales to consumers - Business - The Boston Globe". Boston Globe.
  11. ^ John Voelcker. "Tesla Loses Legal Battles To Texas, North Carolina Dealers". Green Car Reports. Retrieved 2015-04-12.
  12. ^ "Model S Design Studio". Tesla Motors. Retrieved 2015-04-12.
  13. ^ a b Richard Read. "Terrified of Tesla, NADA Launches Campaign To Tout Benefits of Franchise Dealerships". The Car Connection. Retrieved 2015-07-16.
  14. ^ Dan Gearino. "Auto dealers in Ohio seek to stop Tesla's way of direct selling". The Columbus Dispatch. Retrieved 2015-04-12.
  15. ^ O'Toole, James (2013-07-02). "Tesla direct-sales petition hits 100,000 signatures". CNN. Retrieved 2015-04-12.
  16. ^ a b Lane, Charles (2014-03-12). "Tesla takes on car dealerships in a fight to the death". The Washington Post. Retrieved 2015-05-20.
  17. ^ Bradsher, Keith (October 13, 1999). "Fight Is Promised Over G.M. Plan to Buy Dealerships". The New York Times.
  18. ^ Christina Rogers (2013-10-07). "GM Opens the Door to Online New-Car Sales - WSJ". The Wall Street Journal. Retrieved 2015-07-16.
  19. ^ Richard Read. "GM Follows Tesla's Lead, Plans To Sell Directly To Online Shoppers". The Car Connection. Retrieved 2015-07-16.
  20. ^ Bengt Halvorson. "Scion Lets You (Almost) Buy A Car at Home, Take Delivery at Dealership". The Car Connection. Retrieved 2015-07-16.
  21. ^ Voelcker, John (2012-10-25). "Auto Dealers' Fight Against Tesla Stores: Elon Musk Weighs In". Green Car Reports. Retrieved 2014-02-10.
  22. ^ David Noland. "How Texas's Absurd Anti-Tesla Laws Turn Car Buying into A Joke". Jalopnik. Retrieved 2015-04-12.
  23. ^ Chapman, Steve (2013-06-20). "Car buyers get hijacked". Chicago Tribune. Retrieved 2015-04-12.
  24. ^ DeMorro, Christopher (2013-07-01). "Tesla Wins Big in North Carolina And New Hampshire". Gas 2. Retrieved 2013-07-31.
  25. ^ "Direct-to-consumer auto sales: It's not just about Tesla". Retrieved 2015-07-16.
  26. ^ Richard Read. "Can The FTC Persuade Michigan & Other States To Open Their Doors To Tesla?". The Car Connection. Retrieved 2015-07-16.
  27. ^ "Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers" Economic Analysis Group Competition Advocacy, May 2009.
  28. ^ Keller, Maryann; Elias, Kenneth (2014-05-27). "Consumer Benefits of the Dealer Franchise System". National Automobile Dealers Association. Retrieved 2016-01-31.
  29. ^ "Tesla Poised for Lobbying Blitz in 2015". Texas Lobby Group, Conservative Lobbyists. 2015-01-21. Retrieved 2015-08-21.
  30. ^ White, Ronald D. (2013-04-10). "Tesla CEO takes dealer fight to Texas, says he can sell more cars". Los Angeles Times. Retrieved 2013-04-15.
  31. ^ Lutz, Hannah (2015-01-20). "Tesla could open up to 12 Texas stores if legislation passes". Automotive News. Retrieved 2015-08-21.
  32. ^ Heisler, Yoni (2015-05-20). "Tesla Sales Texas: Direct sales of Tesla Model S not coming to Texas". BGR. Retrieved 2015-08-21.
  33. ^ a b Walker, Hunter (2014-03-11). "Tesla Goes To War Against Chris Christie". Business Insider. Business Insider.com. Retrieved 2014-03-11.
  34. ^ Walker, Hunter (2014-03-11). "New Jersey bans direct auto sales". Business Insider. Business Insider.com. Retrieved 2014-03-11.
  35. ^ Rogosky, Mark (2014-03-11). "In New Jersey, Tesla Crashes into The Hypocrisy of Chris Christie". Forbes. Retrieved 2014-03-11.
  36. ^ Young, Angelo (2015-03-16). "Tesla Motors Inc Direct Sales in New Jersey: Legislature Passes Measure To Allow Model S Sales Outside Of Dealer Franchise System; Will Gov. Christie Block The Bill?". International Business Times. Retrieved 2015-07-16.
  37. ^ Symons, Michael (2015-03-18). "Christie signs law allowing Tesla sales in New Jersey". Asbury Park Press. Retrieved 2015-08-21.
  38. ^ Gautz, Chris (2014-10-21). "Tesla's sales limits in Michigan tightened by one word of law". Crain Communications, Inc. Retrieved 2014-10-21.
  39. ^ Martinez, Michael; Wayland, Michael (2014-10-16). "New Jersey bans direct auto sales". The Detroit News. Business Insider.com. Retrieved 2014-10-21.
  40. ^ White, Joseph B.; Bennett, Jeff (2014-10-21). "Michigan Governor Signs Anti-Tesla Bill: Law Bars Auto Makers From Directly Selling to Consumers". The Wall Street Journal. Dow Jones & Company, Inc. Retrieved 2014-10-21.
  41. ^ Shepardson, David (2015-05-12). "FTC urges Michigan to drop Tesla sales ban". Detroit News. Retrieved 2015-08-21.
  42. ^ a b Read, Richard (2015-03-27). "Tesla Wins in Georgia, Loses in West Virginia". TheCarConnection.com. Retrieved 2015-07-07.
  43. ^ Blanco, Sebastian (2016-02-22). "Tesla fights back against anti-store bill 'authored and pushed' by GM". Autoblog. Retrieved 2016-02-23.
  44. ^ Whitehurst, Lindsay (2016-07-24). "Utah car dealers weighing in on Tesla court fight". KSL Broadcasting. Salt Lake City. Retrieved 2016-07-27.
  45. ^ Boroyan, Nate (2014-09-15). "A Unanimous Ruling by the State's Highest Court Means Good News for Tesla". BostInno.
  46. ^ Young, Angelo (2014-09-29). "How Georgia Became The State with the Highest Electric Car Adoption Rate". International Business Times. Retrieved 2015-07-07.
  47. ^ HB0235, General Assembly of Maryland
  48. ^ Angelo Young. "Tesla Motors Inc (TSLA) Wins Approval For Direct Car Sales In Maryland, Starting October 1"
  49. ^ Richard Read. "Tesla Triumphs in Maryland As New Bill Allows Sales at Four Sites: Which State Is Next?". The Car Connection. Retrieved 2015-07-16.
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