Tesla Defends Selling Vehicles Directly to Customers

Tesla Motors (NASDAQ: TSLA  ) co-founder and CEO Elon Musk talked tonight about the company's fight to sell cars directly to its customers, and how national auto dealership groups are trying to keep them from doing that.

At Tesla's annual shareholders' meeting tonight, Musk said, "The automobile association is definitely creating some problems for us, making it harder to get things done." He said auto dealers talk about offering Tesla a franchise to sell its vehicles, but that nowhere in the past nine decades has that worked out for a start-up car company. "In the last 90 years, when did it work?" he asked. "There are no good examples."

Tesla wants to sell its vehicles directly to consumers, which goes against some states' legislation. The company has put up a public fight in several states over the issue. Musk said one of the main problems was that large national dealerships make their profits from services and that Tesla wouldn't be doing that. "Our philosophy in respect to service is not to make a profit on service," he said. "It's terrible to make a profit on service."

Musk said opinion polls overwhelmingly show that customers prefer direct sales, but that large national dealerships were influencing state legislation. The Tesla co-founder said dealership associations were bragging about stopping the company in Texas, North Carolina, and Virginia.

"I think it's outrageous that they would crow about a perversion of democracy," a visibly upset Musk said. "That's just wrong. I think they're making a big mistake."

Musk went on to say that eventually customers will revolt. 

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  • Report this Comment On June 04, 2013, at 10:04 PM, jswap1 wrote:

    Tesla fighting for government to stay out of business. Ironies abound.

  • Report this Comment On June 04, 2013, at 10:14 PM, vlstrade wrote:

    Who doesn't hate the dealership experience? It's basically a tax from the middleman to screw you over. I can buy a 10k television on amazon with no sales tax, but I can't buy a car online, why?

  • Report this Comment On June 04, 2013, at 10:41 PM, SFChelseaFC wrote:

    I wonder who is in bed with the dealer networks... just look at which States. My advice to Musk/Tesla would be to ignore Texas, NC and VA. Those states will switch when the product takes hold. Dealers and Car Manufacturers are about to get blindsided by how quick Tesla will take off.

  • Report this Comment On June 04, 2013, at 10:41 PM, jamesdan567 wrote:

    Of course you can buy a car online. I have bought several using ebay motors.

    Dealerships are nothing but dead dinosaurs and the more they resist the better. People will rebel and buy what they want anyway. Next thing you know, people will be smuggling EV's into Texas :-)

  • Report this Comment On June 04, 2013, at 10:45 PM, botcher99 wrote:

    I hope they can pull it off.

    Dealerships are nothing but moneygrubbers. Very few are truly honest.

    Shaking up the auto industry might actually help the manufacturers in the long run. Maybe this will force them to make better vehicles to keep up with innovation instead of their usual "built to fail on schedule" mobile junkpiles.

    I'm rooting for Tesla.

  • Report this Comment On June 04, 2013, at 11:03 PM, Pilm wrote:

    I agree, screw Texas, NC, VA and any other state involved in racketeering, this isn't the 1950's anymore folks, and none of us need some dealership slob to help us buy a car, all necessary information is available online, we must kill the dinosaur!!

  • Report this Comment On June 04, 2013, at 11:05 PM, sonykkm wrote:

    This is the only reason I am going to buy a Tesla; no dealer!

    I absolutely hate car dealers! HATE dealers!

    I don't even care what kind of car Tesla is selling.

    HATE CAR DEALERS!

  • Report this Comment On June 04, 2013, at 11:05 PM, johncalloway wrote:

    I think its a great idea.i have been in auto sales for 20 plus years,andthe industry has changed.the dealerships are far more money hungry and don't care about the employees,how can they care about the buying public.technology is so advanced,that car salesmen will soon be a thing of the past.you will be able to buy on line create your own financing,pick the car of your choice,call the dealership with the price you will pay ,come in ,bring a check ,ask where car is ,a valet person will hand you keys,and off you go ,with out all the dealership bull manure.

  • Report this Comment On June 04, 2013, at 11:08 PM, trigger46 wrote:

    Heck, I really enjoy the dealership experience. I love the way they hand me off to another salesman, and then the "boss". They offer me so many additional services, for an additional cost, of course. Such as long term warranties, and undercoating. I bet Tesla doesn't offer this. I really enjoy the part where they have hidden my keys, preventing me from leaving. I mean, it is shear entertainment for over two hours! I think the government should prevent any honest folks from corrupting this fabulous tradition, partners...

  • Report this Comment On June 04, 2013, at 11:09 PM, Dadw5boys wrote:

    They don't understand Electric Cars ! There is no need for 20 to 100 Mechanic in every town to repair thier cars. 3 TO 5 Service Techs could service a whole state. They send the Mechanic to the vechile with all the parts needed.

  • Report this Comment On June 04, 2013, at 11:13 PM, beyerch wrote:

    I find the idea that they have to fight to justify selling to customers at all is ridiculous.

    Unfortunately, lobbying and creating barries to entry is pretty typical in the automotive industry.

    Ever wonder why dealerships are closed on Sunday's? In many/most states, it is ILLEGAL to sell cars on Sunday!

    Why? Because "a long time ago in a galaxy far away" large dealers closed their doors on Sunday. Upstarts looking to gain additional sales decided they would stay open and sell on Sunday.

    Instead of competing with those dealerships, the large ones lobbied and had laws passed making it illegal.

    I hope Tesla is successful in getting a positive outcome for their business; however, they are up against a lot of clout.

  • Report this Comment On June 04, 2013, at 11:15 PM, Connelky wrote:

    People need to get this into their heads, jobs is never an excuse for a dumb idea.

    Tesla will prevail against the $tealerships, they have facts on their side, Musk is no idiot and surrounds himself with incredibly smart people.

  • Report this Comment On June 04, 2013, at 11:34 PM, micmart3000 wrote:

    Dealerships are only there to price gouge you. Every service they offer is a rip off IMO.I remember seeing a good stat that said it all...

    A dealer will sell you a motorcycle for $6,000 but if you were to buy the same motorcycle part by part from the dealer it would cost you over $30,000.

    Everything I learn about Musk I am liking. He seems like a real fresh start in so many ways. I hope he succeeds with Tesla and his space program and in the process he can really change the world for the better.

  • Report this Comment On June 04, 2013, at 11:41 PM, Bluexenon wrote:

    Not franchising "authorized Tesla dealers" across the globe is a good idea. Keep costs down, and no BS from dealers on pricing for cars, parts, and service. Also less chance of customer service from being compromised. Good job Elon Musk! stick to your guns, and I hope you and Tesla become extremely successful.

  • Report this Comment On June 05, 2013, at 12:11 AM, draxbunjr wrote:

    Who is John Galt?

  • Report this Comment On June 05, 2013, at 12:26 AM, mottledtool wrote:

    I hope that Tesla's business model spreads to the rest of the automobile industry. I hate car dealers more than insurance salesmen.

  • Report this Comment On June 05, 2013, at 12:56 AM, mickeypoo wrote:

    Not one comment in support of the dealers association.

    That pretty much says what the public wants.

    But then again, this is a no-brainer.

  • Report this Comment On June 05, 2013, at 1:00 AM, jimmykk wrote:

    I can't tell you how many times I've been ripped off by dealerships. Getting them to honor any warranty is like pulling teeth from them. You have to be on top of them all the time to get anything done. I've yet to find one honest dealership. This is about dealerships greed. They don't care if it increases the cost of the car to the consumer. If you look at the bigger picture though .. this is about auto and big oil not wanting electric cars because that would mean no profits for them. Why do you think electric or hybrid cars look so dam ugly? Its done on purpose to discourage you. Bravo to Tesla for challenging the status quo in the auto industry and big oil. Bravo. Keep up the good work.

  • Report this Comment On June 05, 2013, at 1:03 AM, snjpage1 wrote:

    Tesla is a green company that has been successfull. They even paid back the green loan they got from the government 10 years ahead of time. The GOP hate to see a green company doing good. So they are going to do what ever they can to make it lose business. The problem is if they pass the law the courts will rule that it is blocking free trade and it will cost the state taxpayers money that doesnt needed to be wasted on a law such as this one.

  • Report this Comment On June 05, 2013, at 1:13 AM, TboneJenkins wrote:

    I thought these Republican Controlled states wanted less regulation?

  • Report this Comment On June 05, 2013, at 1:44 AM, eyeknonothing wrote:

    The Republicans "say" they want less regulation except where it benefits them. I hope Tesla knocks them all on their keisters.

    I would like to know when Conservative meant giving industry whatever it wants with no regard to consumers. As in the recent "Monsanto Protection Act". Wake up people!!!

  • Report this Comment On June 05, 2013, at 2:10 AM, jamesdan567 wrote:

    Protecting a business model with legislation doesn't work when 1 billion people are on the social networks grinding down the Bs into the facts.

    I am in California and I can buy a Tesla online anytime I can afford to. Click Click Click and I am done. So the real question is how come you nice consumers in N Carolina, Texas and Virginia don't have the same freedom and rights that I have. Maybe y'all should think about that hmmm?

    You gonna take it lying down? I certainly hope not! You would be well advised to call your local politician and give him an earful....

  • Report this Comment On June 05, 2013, at 2:40 AM, qstorm82 wrote:

    Thank you Pres Obama, for your investment in alternative energy. These coming years will be disappointing to big oil, they'll lose a lot of income due to cars like the Tesla.

  • Report this Comment On June 05, 2013, at 2:57 AM, SuntanIronMan wrote:

    @TboneJenkins

    Texas is not the Republican stronghold many people think it is. I think people see the presidential electoral college map and assume that every Texas voter and politician is Republican. Texas politics are a lot more complicated than that.

    In recent years (about 8 or so) the Texas Republicans have made major gains. But for most the the 90s, the Democrats controlled both the Texas state Senate and House. And until (I think, don't quote me) 2005, it was a divided state legislator (with Democrats controlling one and the Republicans controlling the other).

    And before Perry and Bush, the woman in the Governor's Mansion was Ann Richards (Democrat).

    Texas is a lot more complicated than boiling it down to a simple Republicans vs. Democrats argument. Especially when prominent Texas Republicans (like Rick Perry) vocally support Tesla's efforts to sell their cars directly to Texans without going through the dealership model.

  • Report this Comment On June 05, 2013, at 5:15 AM, pepelay wrote:

    A typical makes a profit of $1000, on which car manufacturer receives $500 while car-dealership receives $500. What do these dealers do really, by the way?

  • Report this Comment On June 05, 2013, at 6:35 AM, Galane wrote:

    Dealers make far more profit off used cars than they do new cars.

    My grandparents quite often would go to the factories and buy their new cars directly there, bypassing the dealers.

    In the 1940's and 1950's the manufacturers didn't care where they sold cars, they just wanted to sell cars, as many as possible.

    What squeezed out all but Ford, Chrysler and GM was artificial metal rationing during the Korean War. Each year the amount of steel they could use was reduced, based on the previous year's number of cars sold.

    Back then, Ford still owned iron mines, coal mines and steel mills - thus the company could make its own steel and I bet was more than willing to sell steel and iron to GM and Chrysler, but not to the other companies like Hudson, Nash, Studebaker and Packard.

    The 'big three' were really stupid for all the actions they took in destroying all the other American vehicle manufacturers. They figured they had the whole market to themselves, with only American Motors hanging on by the end of the 1960's. All that did was throw the doors wide open for Japan.

    Remember when the US government bailed out Chrysler (the first time)? When American Motors needed the same kind of help in the 80's, Chrysler spent gobs of money to 'lobby' (bribe) Congress to not help AMC because Chrysler wanted to get the JEEP brand, and let the rest of their acquisition of AMC die.

    Had Ford, GM and Chrysler been smart and worked to help the smaller American companies, there'd still be 5 or 6 or more and the imports would be the small minority like they used to be.

    But all they could think about was *eliminating* their competition, which ended up hurting them.

  • Report this Comment On June 05, 2013, at 8:45 AM, Ghettosamurai wrote:

    I am a dealer in Delaware. What is the issue with this? It isn't illegal...I think it is great for the consumer.

    Sure it stinks for the new car salesman...but used car salesmen can still sell this car.

    The used car industry is bigger than the new car. Tesla is a company to be modelled after not legislated into a cookie cutter manufacturer.

  • Report this Comment On June 05, 2013, at 9:26 AM, EVN1 wrote:

    And dealerships wonder why they are so despised? Let the consumer choose. It's what all the anti-EV groups constantly say, yet when the consumer does decide, but just not in the way the anti-EV groups wanted, they use their political clout to get the best politicians money can buy to put obstacles up and pass laws that protect the money grubbers. Hypocrisy at its finest from an industry already ranking low among consumers.

  • Report this Comment On June 05, 2013, at 11:00 AM, todamo13 wrote:

    One thing you need to know about Texas is that it is fully, 100% controlled by the GOP at the state level. There may be a scattering of democrat representatives, but they are a powerless minority. So it's no surprise the Texas govt. would be against a "green" innovative company that is succeeding, and also was an example of successful government investment in new technology.

    However, what is even more important to know is that the Texas government is simply a subsidiary (the political arm, if you will) of the the oil and gas industry. Whatever that industry wants in Texas, it gets (good luck if you live on top of shale gas or oil in this state, or are in the way of a pipeline). So again, it's no surprise they would be against a "green" company.

    And possibly the most important thing to know about Texas is that Perry, et al might claim to love the "free market," but they are actually crony capitalists. So Oil and Gas involvement is likely, as is pocket-padding by the Auto dealers.

    For instance- the new Formula One track and race in Austin (I love F1, by the way). Much of this track (millions of dollars) was paid for by the Texas Govt (taxpayers). So the Texas GOP isn't against ALL government involvement, just govt involvement that doesn't directly help them...

    If Elon Musk got some oil and gas wells or decided to build a pipeline he might have more luck. Or just give ol' Rick Perry some campaign donations or contracts.

    Good luck, Mr Musk, keep fighting the good fight!

  • Report this Comment On June 05, 2013, at 2:30 PM, loofllams wrote:

    Most "in the know" dealerships already have a large and very efficient internet sales department. Those that don't are losing sales every day.

    These in house depts. for the most part, bypass the the salesmen and the floor managers, and give out what amounts to wholesale prices to the folks who visit their virtual showroom on the internet now. It is the wave of the future and is being pushed forward by the same dealers who say that Tesla should not be doing it.

    Porsche-Audi tried it in the early eighties but was stymied by the NADA at that time due to the fact that the general public had no real viable stake in the outcome. That seems to have changed, but no matter, the change is inevitable. It's just a matter of how long the dealers can stall that change.Passing and enforcing laws that go against the general wants, needs, and wallets of the buying public is just about the only avenue still open to NADA. They will use it as long as possible.

  • Report this Comment On June 05, 2013, at 4:56 PM, MrKevinSD wrote:

    They don't refer to car dealerships as car stealerships for nothing....

    Every time I read these negative comments on the irony of Tesla wanting the government to stay out of the free market because they received government cheese, I think the people making such comments must have the short term memory of habitual marijuana smokers..

    Do you people forget about subsidies that airlines, or oil companies receive from the government, or the subsidies that the dairy industry receives, or the telecommunications industry for that matter. - In fact, the subsidies that the telecommunications companies receive alone could have paid Tesla's DOE loan many times over.

    Every single new technology that we rely on today was subsidized by the government, so why are your panties in a twist over tesla?

    I am much more upset over the Trillions we've given to the banking sector as a reward for predatory lending, crashing the economy, or manipulating LIBOR or illegal foreclosures.

    This only serves as an example that we live in a corptocracy and not a democracy. If we did live in a democracy the majority of the PEOPLE in Texas would get their way and not the NCDA.

  • Report this Comment On June 05, 2013, at 5:14 PM, PinkFloydLawson wrote:

    Oh c'mon. I can't wait until a Tesla owner rolls through a pothole and breaks a suspension part or two and wants it fixed NOW! For 100K, who wouldn't? So he picks up the phone and dials it in. And he waits. Since he lives 500 miles from the place it was delivered from, these things take time and there's no dealer network of course. You all think that's a viable solution?? Really?

    If you don't like the dealer you went to, go somewhere else. Need a windshield replaced because a rock plopped off a gravel hauler? Go to your local dealer and it'll be done in no time. Need regular maintenance? Ditto. Some of you are living in a fantasy world to think you don't need a dealer network or service departments.

  • Report this Comment On June 05, 2013, at 7:09 PM, edelbrp wrote:

    Dealerships are awful. I was run off a lot by management once because I had a Kelly Bluebook in my hand. The silly games of 'write down an offer and I'll take it to the boss' which apparently takes 20 minutes because he is a 'very busy man'. The last time I took a car to a dealership (I drove it there) for servicing they took the engine all apart, said it was beyond repair, charged me $500 and didn't even try to put it back together. I had to hire a tow truck to take it to a scrap yard.

    I get that dealerships help the local economy and such, but they are there to make money even for servicing. Preventing direct sales prevents Ford from allowing you to skip the dealership middle man, but it also hurts new manufacturers who don't already have an established dealership network. It's anti-competitive.

  • Report this Comment On June 05, 2013, at 8:39 PM, SuntanIronMan wrote:

    @todamo13

    Texas is actually a great state for renewable energy. Lots of wind energy, lots of solar and is home to many alternative energy and EV infrastructure companies. First privately-funded EV charging network in the United States started in Houston.

  • Report this Comment On June 09, 2013, at 7:05 AM, stainlesssteel77 wrote:

    @PinkFloydLawson

    "Tesla owner rolls through a pothole and breaks a suspension part or two and wants it fixed NOW!...there's no dealer network..."

    Apparently you're unaware of Tesla Ranger mobile service, and growing number of Tesla service centers. But don't let that stop you from fear/uncertainty/doubt-mongering.

    http://www.teslamotors.com/blog/creating-world’s-best-servic...

    http://www.teslamotors.com/findus/service

    "Need a windshield replaced...? Go to your local dealer and it'll be done in no time."

    Or your local independent repair shop. Or local independent glass shop. For far less money and often better job vs. a non-glass specialist like a new car service center.

    "...living in a fantasy world to think you don't need a dealer network or service departments."

    Illogic--straw man: No one said you don't need service departments. They just don't need to be run by independent new car dealers.

    Incorrect information: Given EV's vastly lower parts count and fewer moving parts vs. gasoline cars, as Dadw5boys notes: "There is no need for 20 to 100 Mechanic in every town to repair their cars. 3 TO 5 Service Techs could service a whole state. They send the Mechanic to the vechile with all the parts needed."

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