Navigant Research Blog

Another State Bans Tesla’s Sales Model

— March 14, 2014

This week the New Jersey Motor Vehicle Commission (NJMVC) voted to ban Tesla’s direct manufacturer-to-customer sales model, starting April 1.  The move places New Jersey alongside Arizona and Texas as the only states to ban direct sales of the Tesla Model S.  The upstart automaker has been selling its Model S through showrooms where customers can experience the vehicle.  They are then directed to the company’s website to purchase the vehicle.  Subsequently, it is delivered to the customer’s home directly from Tesla.  This sales model bypasses traditional dealers altogether, much to the dismay of state dealer associations across the country.  Accordingly, since Tesla first began production and distribution of the Model S in 2012, it has been fighting legal battles in many states to permit its sales model under existing dealer franchise laws, with varied success.

Dealer franchise laws exist in almost all states and were first created to prevent automakers from forcing excess inventory unlikely to sell on dealer lots.  Tesla’s rationale for the allowance of its direct sales model under state franchise laws is premised on the unique characteristics of the company’s Model S and future vehicles.  Tesla argues existing dealers are not adequately incentivized to sell the company’s vehicle due to the lower servicing requirements of electric vehicles; thus, the direct sales model is critical.  While this may be true, Tesla’s struggles with state franchise laws raise questions about the legitimacy of the laws and the value of the dealerships they protect.

Between You and the Automaker

The president of the New Jersey Coalition of Automotive Retailers (NJCAR), a primary opponent of Tesla’s sales model, has claimed that an important reason for franchise laws (and therefore dealerships) is that car dealers act as consumer representatives vis-à-vis the automaker.  If that argument is true, then it follows that if all vehicles were sold directly to the consumer rather than through a dealer, consumers would lose their primary automotive advocate and be more susceptible to automaker abuse.

The validity of NJCAR’s argument assumes that consumers are ill informed about manufacturers’ products, warranties, etc.  While that’s sometimes true, it’s hardly absolute, particularly in the Internet age.  Consumer preferences are strongly shifting toward online purchasing platforms rather than brick-and-mortar retail – a sign that consumers are not always interested in dealer interactions in the first place.

Clean My Windshield

As my colleague Dave Hurst points out in a blog on this matter, dealers provide “important services within the new vehicle purchase process” that may not be as easily or adequately provided by automakers or by the web.  That’s undoubtedly true, but whether these services are indispensable is a question best answered by consumers rather than politicians.

Allowing Tesla to demonstrate that its innovative (and yes, disruptive) sales model is beneficial for both the consumer and the automaker is an appropriate step in determining whether dealer franchise laws are actually meaningful or simply protectionist.  It’s possible for the direct-to-consumer sales model to exist alongside the dealer retail model.  The Internet hasn’t put realtors out of business; it has just changed their business practices.  Requiring Tesla to sell through dealers is akin to requiring gas station attendants to pump gas rather than allowing vehicle owners to pump their own gas.  Interestingly enough, New Jersey is also one of the two states that still have this law.

 

Selling EVs Becomes a Dealer Incentive

— March 5, 2014

In the ongoing debate over what is needed to enable electric vehicles (EVs) to achieve a sizable share of new vehicle sales (i.e., 5% or more) one critical group of participants is often overlooked – car dealers.  Automakers and state governments have focused primarily on developing a winning combination of incentives and regulations to get consumers to buy EVs while neglecting the importance of dealerships.  That may be changing, as the state of Connecticut has created a novel award for dealers who successfully move EVs off the lot.

In February, the state announced that, in partnership with the Connecticut Automotive Retailers Association, it has established the Connecticut Revolutionary Dealer Award.  This award will be given to the dealership that sells the highest percentage of EVs, as well as to the dealer that sells the most EVs in total.

Moment of ZEV

Unless you’re buying from Tesla Motors, dealers are the last mile in an EV purchase transaction.  Their enthusiasm for selling new technology that requires more consumer education and has less likelihood of later service revenue has, not surprisingly, varied greatly.  While in many cases consumers are sold on EVs before ever entering a showroom, the oft-maligned car salesperson can either make buyers excited about the technology features, mobile phone integration, and gas station avoidance or easily push an EV prospect toward a conventional vehicle via FUD tactics.  Automakers have learned from the experience of some less-than-thrilled dealerships to create stronger incentives, and this appears to be the first time that a state agency has incentivized dealers to sell EVs.

While the press release did not specify whether the winners will receive a financial reward, plaque, or merely bragging rights, Connecticut is wise to trumpet dealers’ important role as part of a comprehensive plan to expand EV adoption.  Since it is one of the eight zero emissions vehicle (ZEV) states committed to collectively getting 3.3 million EVs on their roads by 2025, Connecticut faces an uphill battle.  As detailed in Navigant Research’s recent free white paper, Electric Vehicles: 10 Predictions for 2014, it’s a long road from EVs being less than 1% of vehicles sold in 2013 to 10% of those sold in 2022, as required by the ZEV mandate.

For states to meet that goal, they will need multiple incentives and policies to encourage EV purchases.  Connecticut currently offers grants for municipal agencies to purchase EV charging infrastructure, though the state’s public tax credits for EV charging equipment expired in February.  The Nutmeg State would be wise to add a tax credit for buying an EV and offer EVs HOV lane access, which California has proven will get consumers lining up for EVs.  The move to recognize dealers who assist in the process is a helpful step along the way.

 

Timely Launches Fuel EV Market

— January 29, 2014

According to Navigant Research’s free white paper Electric Vehicles: 10 Predictions for 2014,  the global electric vehicle (EV) industry is poised to grow by 86% this year, surpassing 346,000 new vehicles sold.  Additionally, our report Electric Vehicle Market Forecasts  predicts compound annual growth rates (CAGRs) for hybrid electric vehicles (HEVs) (9.6%), plug-in hybrid electric vehicles (PHEVs) (28.5%), and battery electric vehicles (BEVs) (29.3%).  In order to achieve these growth rates, new EV model releases will have to closely align with market expectations.  Unfortunately, in the past many EV makers have not had a stellar record of launching new models on time.

Let’s take a look at 2013 (model year 2014) and see what EV models were released as scheduled in North America.  All EVs that were expected to be released in 2013 are currently available, with the exception of the 2014 Nissan Altima Hybrid.  BEVs such as the Chevrolet E-Spark, Fiat 500e, and smart fortwo; PHEVs such as the Ford Fusion Energi, Honda Accord, VIA SUV, VIA Pickup, and VIA Van; and HEVs such as the Ford Fusion, VW Jetta, Lexus ES 300h, and the Acura ILX were all released as expected.  The recent pattern of releasing new models in a timely fashion will play an important role in the healthy growth of the EV industry.

In the luxury EV space in particular, new model releases will stiffen the competition like never before.  Tesla’s highly successful Model S will be challenged by BMW’s i8 and i3, the Cadillac ELR, the Audi A3 e-tron, the Mercedes B-Class Electric Drive, and the Porsche Panamera S E-Hybrid, assuming that they are launched on time.  Reliable model releases will encourage better competition and increase consumer confidence, hopefully leading to better products, lower prices, and overall more robust EV markets.

Expected HEV, PHEV, and BEV Releases, North America: 2014

(Source: Navigant Research)

 

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