Less than 13 miles from AuSM’s headquarters in North Carolina, Tesla appeared to have scored at least a partial victory in the ongoing fight over its retail model.
The News & Observer of Raleigh reported a bill Wednesday in the North Carolina General Assembly that the newspaper said would permit dealerships owned by companies like Tesla, albeit with multiple stipulations that are .
Then mid-Thursday afternoon, local TV station WRAL reports the .
This back-and-forth in the Tar Heel State is emblematic of Tesla’s saga on the national level, where navigating the patchwork of state-by-state laws can make the legislative battle seem more like a game of Whac-A-Mole.
“I feel like they seem to make progress in one area, but then they’ll also meet the same or increasing challenges that they’ve been meeting in other areas,” said Karl Brauer, executive publisher of Kelley Blue Book and Autotrader.
AuSM talked to Brauer and other analysts on Thursday, prior to learning about the suspension of the bill.
But his sentiments are apropos for the one-step-forward, two-back nature of this fight, which has included recent legislative setbacks in places like Texas and Michigan.
“It seems like they’ll make progress in one state, but have as many or more challenges than ever in another state,” Brauer said by phone, “I don’t get the sense that there’s this trend that they’re slowly winning this larger long-term battle against the traditional dealer bodies out there that are franchised versus manufacturer-owned.”
However, Edmunds executive director of strategic analytics Jessica Caldwell told AuSM that even with the state-by-state wins and losses for Tesla, the company’s store count is expanding.
“So, clearly they’re able to work around the system,” she said in a phone interview.
And in a statement from a Tesla spokesperson provided to AuSM, the company offered a seemingly positive outlook on its situation in North Carolina.
“We continue to push to expand our locations in North Carolina and advocate for consumers who want the option to buy electric vehicles throughout the state,” the Tesla spokesperson said in the statement.
“In the meantime, we continue to serve our customers in North Carolina at our Raleigh and Charlotte facilities, while we work to expand and grow these operations through the legislature and the courts.”
Advantages to Tesla retail stores
So what’s the -side to a direct-to-consumer manufacturer having a localized store presence, anyway? For one, it’s about the control, says Brauer.
“I think there’s a desire to just have control over every aspect, because everything from the presentation of the vehicles to the sales process and the prices charged can be much more tightly controlled and regulated in the traditional sense,” he said.
In the traditional model, of course, the ownership of the car goes from manufacturer to dealer, giving the OEM less control after the fact, he said.
“And there’s always guidelines and aspects of being a given franchised dealer that you’re supposed to follow, but it’s very tough to enforce those in a traditional model,” Brauer said. “And I think Tesla just didn’t want to have that as part of their business model. They wanted to have total control and be able to rigidly control prices, presentation, even dealer appearance, policies, everything. “
It’s also a matter of brand exposure, Caldwell said.
At least at this point, you’re not going to see a Tesla commercial on primetime NBC, she said.
So particularly in the early stages, it was important for Tesla to have a ground game.
The company turned to with retail centers in heavily trafficked areas like malls where they could reach crowds of consumers, Caldwell said.
Not to mention, she adds, having local retail centers allows Tesla to teach consumers about their product and answer any questions they might have. At a traditional dealership, where a consumer is already familiar with the brand and product, it’s typically more sales-focused than education-focused.
“You probably already know what a Ford F-150 is when you walk in. You’re not necessarily asking the questions,” she said.
While some of that has brand exposure necessity has died down given Tesla’s rise in awareness, that initial effort was crucial to answering the “unknowns,” she said.
“Being where their customers are and being able to answer the questions for a new brand like Tesla that’s not really quite established, was probably the key thing,” Caldwell said. “And also, when you’re in a crowded place, you just get a lot more brand exposure.”
Future of Tesla stores
Of course, Tesla has service centers as well as retail centers, Caldwell points out. And as she mentioned earlier, the store count is climbing. But will there be a day/time when Tesla stores are as common as even some of the niche automakers?
Caldwell says it’s “possible” that Tesla could approach niche-brand type of dealer count. However, that will likely hinge on the success of the Model 3 as well as Tesla’s next launch and its potential volumes.
“It’s hard to see them winning this whole dealership fight, but I think as they expand into the Model 3, they’re going to need more facilities in terms of inventory,” Caldwell said.
A major factor in Tesla preferring not to have dealerships from the get-go was that their product was designed to be “custom-built, low-volume,” she said, versus a traditional dealership that might have scores or even hundreds of the same model on the lot for any customer to come and buy.
“But I imagine as they go mass market, that component is going to change. They’re going to need more inventory. And even though they say that EVs don’t need as much service and repair, they’re going to need some service and some repairs,” Caldwell said. “So, I think that that will naturally expand some of their facilities.”
‘Why couldn’t (dealers) compete?’
Kevin Root, who is the founding partner at Root & Associates, used to sell cars in the retail world. His background in the auto industry includes time with companies like Cobalt/CDK Global, Dealer.com and DrivingSales. He said he’s quite fond of auto dealers, who have been a part of his professional life for some time.
“But when I look at, sort of, this battle that’s been raging on,” he said in a phone interview, “and you’ve got this entity that’s wanting to simply sell their product directly to the consumer, and we’ve got these laws that have been in place for a long, long, long time.
“And I believe that those laws were probably created to protect the dealers in an era where things were maybe different,” Root said. “As a guy that relies on and provides product research, consumer research to a lot of companies in the industry, at the end of the day, where I come down on this is, shouldn’t we just do what’s right for the consumer?
“Yes, that could be at-risk of some dealers,” he said. “But what’s to say that if a dealer is providing a really good experience, why couldn’t they compete?”
Root gives the analogy of Apple. Imagine if that company could not sell its products directly to consumers, where to buy a one of their products required the customer to go to an Apple store, he said.
Folks have gotten accustomed to the Apple store concept of working with “product specialists” who are experts in the devices and aim to trouble-shoot.
“When Apple rolled out those Apple stores, it was a big change in the retailing landscape and environment,” he said. “And many people would say a change for the better. A lot of companies have adopted that model, including some of the automotive retailers. Because Apple did the research, they understood what consumers wanted and how they wanted to buy and interact, and have their products serviced.
“If I come back to the car business, and I think about this in those same terms, Tesla has changed the model. Is there are a lot of people other than dealers that would say that it’s a bad model? Many of them would say they’re very much in-tune, in-step with how consumers want to buy,” Root said. “And I guess my question is, is that a bad thing? And if the answer was, it is a bad thing, then they wouldn’t be around, which means they wouldn’t be competitive.
“Dealers are really smart people. And they’re really competitive,” he said “And so I guess my whole point would be, let’s quite hiding behind these protection laws and go back to competing on customer experience. And if we do that, I don’t think we’ve got anything to worry about.”
It should be noted that, according to The News & Observer story from Wednesday, the North Carolina Automobile Dealers Association had applauded the aformentioned legislation. As of Friday, the National Automobile Dealers Association had not provided comments on the matter to AuSM.