Tsla Showroom

Image source: Tesla. 

Tesla's (NASDAQ:TSLA) ongoing war with traditional car dealerships has been raging for years. Slowly but surely, the electric automaker continues to chip away and make progress. Roughly half of the states now allow Tesla to sell directly to consumers, while dealer lobbies continue to fight on the legislative front to block Tesla.

This battle requires a little more perspective to really illustrate just how terrified car dealers are of Tesla.

Tesla's U.S. market share is a rounding error
Earlier this month, Tesla reported its fourth-quarter deliveries of roughly 17,400 vehicles, bringing its 2015 total to just around 50,500. Meanwhile, the total U.S. market set a new record, moving 17.47 million vehicles, according to Reuters. Tesla doesn't officially break out its sales by geography, but using its global figures we know that Tesla's U.S. market share is less than 0.28%.

Third-party estimates peg Tesla's U.S. sales at 25,700. So Tesla's U.S. market share could potentially even be closer to half of the figure above, which is essentially a rounding error in the grand scheme of the U.S. market. So here we have an entire nation full of traditional car dealerships mostly represented by the National Automobile Dealer Association, or NADA, lobbying to squash a company that has perhaps 0.14% to 0.15% U.S. market share. That's how terrified NADA is of the direct-sales model.

Goliath is so scared of David that he won't fight fair
The reason that NADA is so scared of Tesla is because Tesla represents an existential threat and a potential paradigm shift to how consumers purchase and service their cars.

Most people don't particularly like the experience of walking into a car dealership, only to be promptly greeted by numerous commission-based salesman breathing down their neck. I had to take my car in for service recently, and while killing time in the showroom one particularly unscrupulous salesman snuck up on me and told me, "You look good in that car." Talk about creepy.

Service has also long been a profit center for dealerships, but Tesla believes that it's fundamentally wrong to profit so much on service. Gross margin on services and other was just 9% in the third quarter, significantly lower than the 26% automotive gross margin. The company would rather just sell you a premium car that requires minimal service, even if you pay more upfront.

Tesla has pointed out on numerous occasions that the average consumer is quite open to the idea of a direct-sales model. But the dealer lobby instead uses legislative actions to block Tesla, which is contrary to what consumers actually want. NADA is so scared that it won't even compete on a level playing field.

Regulatory intervention
Regulators are now starting to take notice as well. In 2014, Michigan governor Rick Snyder signed a bill reiterating the direct-sales ban (it was already banned), which is unsurprising given the presence and financial importance of the Big Three in The Mitten State.

A few months later, the FTC urged Snyder to repeal the bill since it merely reinforces the protectionism "to the detriment of Michigan car buyers." Just yesterday, there was also an FTC panel discussing auto distribution models. Tesla General Counsel Todd Maron was a panelist during the direct-distribution section.

One of these days, consumers might just get what they're asking for in the states where direct sales are banned.

Evan Niu, CFA owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.