In mid-June, Florida Governor Ron DeSantis signed a bill into law that gives Tesla (TSLA 1.50%) and select other electric vehicle (EV) makers a couple of notable advantages over legacy automakers in the Sunshine State.
Having an edge over competitors -- especially the big players, such as Ford and General Motors -- in Florida's auto sales market is no small advantage. The country's third-most-populous state is home to about 22.2 million people, or about 6.7% of the nation's total population. Moreover, Florida's population has been growing more rapidly than the national average for decades. Indeed, in 2022, it clinched the title of the fastest-growing state in the country, according to the U.S. Census Bureau.
Below are three key provisions of the Florida law, which goes into effect July 1, that investors should know about.
Image source: Tesla.
1. Bans legacy automakers from offering direct-to-consumer sales in Florida
HB 637, "Motor Vehicle Dealers, Manufactures, Importers, and Distributors," prohibits automakers that currently do business in Florida using a dealer business model -- which includes all the legacy automakers -- from offering direct-to-consumer sales.
This ban does not apply to automakers that have never used dealers in the state, which includes Tesla, Rivian, Polestar, and some other electric vehicle makers. Such companies can continue or start selling their vehicles directly to Florida consumers.
Florida has long regulated how automakers can sell their vehicles, and the prohibition against them competing against their franchised dealerships is not new. What is new, however, is the language in the law that specifies that some automakers are excluded from the ban on direct selling, as well as the other provisions of the law discussed below.
Tesla's direct-to-consumer sales model is one of several key reasons the company sports a considerably higher profit margin than the auto industry average. (Other main reasons include its pricing power, manufacturing efficiency, and limited spending on marketing.) Legacy manufacturers typically give a cut of a vehicle's sales price to the dealership that sold it.
2. Bars automakers from dictating the sales prices dealerships must use
The new law bans automakers from setting the retail sales prices that their dealers must use. Dealers will often add a markup to a manufacturer's suggested retail price (MSRP), or "sticker price," and this markup could be substantial for vehicles that are in short supply and high demand.
High markups are great for dealers, as they mean more profit for them. But they are becoming problematic for legacy automakers because consumers are increasingly embracing the transparent pricing policies of automakers, such as Tesla, that sell directly to consumers.
3. Requires dealerships to be compensated for features and upgrades activated OTA by consumers for two years
The new law requires automakers to compensate dealerships for certain over-the-air (OTA) feature activations and upgrades made by consumers for two years after the vehicle sale. This measure applies even if the dealer is not involved at all.
This provision has the potential to give Tesla and other auto manufacturers that engage in direct-to-consumer sales a bigger advantage than it might seem. Automakers have begun following Tesla's lead and enabling certain features and upgrades to be activated OTA. Moreover, the auto industry is moving toward subscription pricing for these features, with this dynamic likely to accelerate. Tesla is also at the forefront of this trend and offers several OTA-activated features via monthly subscriptions, including what it calls its "full self-driving (FSD) capability" package.
In short, on July 1, the business environment in the Sunshine State will become sunnier for Tesla and select other EV makers and somewhat cloudier for legacy automakers.
