Tesla: we're not car dealerships
People look at a Tesla Motors vehicle on the showroom floor at the Dadeland Mall on February 19, 2014 in Miami, Florida.
If you call a Tesla showroom in New Jersey, they’ll call it a “gallery.” You can look, but you can’t buy. For the last six weeks or so, sales have been banned there because Tesla was selling the cars directly, and a state law requires vehicles be sold through dealer franchises. A bill is advancing in the state legislature that would allow companies that sell only electric cars to open their own stores.
One rationale the company is pushing: its cars don’t need much service.
That’s one thing that attracted Yina Moore of Princeton to the Tesla nine months ago. She used to drive BMWs and Porches. But she likes that the all-electric Model S needs no oil changes or spark plugs.
“It has few moving parts in which to have failure,” she says.
That’s a problem for the dealer franchise model, because most car dealers make very little profit on new cars, from a few bucks to maybe one or two percent of the price. The National Automobile Dealers Association says more than half of dealers’ profits come from service, parts, and used cars.
Tesla says its cars don’t need much service, so it wants to make its profits on the sales.
“What we have done in New Jersey is make it illegal for them to use their business model to sell cars,” says Tim Eustace, a New Jersey assemblyman who co-sponsored the bill to allow electric car companies to sell directly.
Tesla wouldn’t comment on tape, but the company has called dealers “middlemen.” Dealers, of course, see it differently.
“The Tesla business model is designed specifically to eliminate price competition,” says Jim Appleton, president of the New Jersey Coalition of Automotive Retailers.
He argues that dealers are an important buffer between manufacturers and customers, and are more aligned with consumer’s interests. They compete on price.
And, he says most new cars don’t need much maintenance anyway. “Tesla may know a lot about electric cars, but apparently they don’t know much about internal combustion cars anymore,” he says.
And, for all its talk about not needing to go to the shop often, Tesla does offer service plans. Prepaying $1,900 gets you four years of service.