Navigant Research Blog

Tesla Direct Sales Banned in Another State

Scott Shepard — October 28, 2014

In mid-October, Michigan governor Rick Snyder signed legislation that effectively bans Tesla’s direct-to-consumer sales business model in the state.  Direct sales of cars are also currently banned in Texas, Maryland, Virginia, and Arizona, and limitations are in place in Georgia and Colorado.  Despite these setbacks, Tesla has overcome battles in Minnesota, Massachusetts, North Carolina, and recently New Jersey.

The reason Tesla’s sales model has been banned has been explained many times, including past Navigant Research blogs, found here and here.  The most critical factor is that Tesla’s direct model leaves established car dealerships out of the business transaction.  This supposedly gives Tesla an advantage over other automakers (like General Motors, which supports the Tesla bans) that must sell their vehicles through dealerships.

As Tesla sales continue to grow, state laws protecting dealerships will come into sharper focus.  Automakers and dealers will have to adapt to legislative reforms accordingly.  Given that, it’s harder to imagine a future where Tesla is forced to sell through dealers than to envision one in which all automakers are able to set up similar direct-to-consumer sales models as they see fit.  Some automakers are already adding more direct pathways for consumers to communicate directly with the automaker on vehicle specifications and deliveries.

Time to Evolve

Under these changing conditions, automotive retail must adapt to the new, information-based, time-efficient market or become structurally obsolete.  Consumers now have more knowledge, power, and control over their vehicle purchases than ever before, and future car buyers will be far more autonomous.  Greater transparency around vehicle costs, automaker inventories, and financing mechanisms enabled by the Internet shifts the bargaining chips heavily in the consumer’s favor.

The disconnect between established dealers and automakers and the new tech-savvy, well-informed consumers will only become more pronounced if state dealer associations focus on campaigning against Tesla rather than pushing industry adaptation.

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