Tesla Proves the Critics Wrong. Again.

Electric-car maker Tesla Motors (NASDAQ: TSLA  ) kicked off the new year by celebrating its recent victory in a legal brawl brought on by Massachusetts auto dealers. Let's take a closer look at what this means for Tesla's retail strategy in the year ahead, and why investors may be in for a wild ride.

A monumental shake-up
Last year, the Silicon Valley-based company proved it was capable of creating not only the best all-electric vehicle ever built, but also the best performance sedan on the planet. More recently, Tesla's seven-passenger Model S earned one of the auto industries highest honors, Motor Trend's "2013 Car of the Year" award.

With this accomplishment out of the way, Tesla is ready to tackle its next challenge: reinvent the car-buying experience. Forget heading to a dealership to purchase your next car. Tesla is in the process of launching mall stores around the country to showcase display models of its gas-free rides.

Mall-goers are encouraged to explore the cars and learn about the technology in these stores. Visitors can also use in-store computers to submit reservations for the Tesla Model S. The company has opened 24 of these new concept stores so far in the U.S. and Canada.

Of course, executing this strategy hasn't been easy. For one thing, auto dealers in some states have taken issue with the company's disruptive distribution model of selling directly to consumers. As you may know, some state dealers have gone as far as to launch lawsuits against the company. This brings us back to Tesla's recent litigation win.

The jury is in
The Massachusetts State Automobile Dealers Association lost an important round this month in their case to shut down Tesla's retail showrooms in the state. A Superior Court judge has dismissed the case on the basis that Tesla's manufacturer-owned stores don't violate state laws. Why does it matter?

The outcome of this case may help deter other state car dealers from suing Tesla over operating its own stores. Tesla co-founder and CEO, Elon Musk, commented on the court's decision by saying: "We are confident that other states will also come to this same conclusion and look forward to following through on our commitment to introduce consumers to electric vehicle technology in an open, friendly, no-pressure environment."

More than this, it lends support to Musk's visionary, albeit disruptive, approach to selling cars. And let's be honest, the established franchise dealership model is outdated. By opening showrooms in popular malls around the country, Tesla is engaging with every type of person -- not just those looking to buy a car.

Other state lawsuits will likely be filed against Tesla down the road, despite the encouraging news out of Massachusetts. Though that's not to say they have a chance at a different outcome. Musk's reasoning for pursuing a company-owned store model is sound. "Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars," he argues.

Coming out on top
This is a daring strategy no doubt. Though, if anyone can pull it off it's Tesla. Competitively speaking, Tesla has some of the strongest executive talent around. George Blankenship is heading up the company's retail strategy as Tesla's VP of worldwide sales. If that name sounds familiar, it's because George Blankenship, together with Steve Jobs, is credited with the success of Apple's retail stores.

That's right; Blankenship brings with him a 10-year history as Apple's chief of retail. Mr. Blankenship explains: "I think Apple changed the world in numerous ways, I think Tesla's going to do the same." This may be true. However, transforming an auto industry that has been stuck in its ways for more than 100 years takes time. Not to mention, there is little room for error.

So far Tesla gets high marks for transparency. The company's blog is updated regularly with important notices and information directly from the top. When the Massachusetts State Auto Dealers Association filed its lawsuit against the company, Elon Musk promptly responded with a post about fairness and franchising.

George Blankenship also makes regular posts as part of a series titled "Inside Tesla," which gives consumers and investors alike a behind-the-scenes look at Tesla's progress. By doing so, they are building a brand that is not only exciting, but also authentic.

While the road ahead will make for a bumpy ride, I suspect early Tesla investors will be handsomely rewarded down the road.

 


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