Tesla Dodges Traditional Dealerships—And Questions Remain

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Tesla Motors [NSDW: TSLA], by nearly all accounts, is an automaker that’s doing things differently. It’s based in Silicon Valley, not Detroit. And it’s transitioning from making a very modest number of Tesla Roadster models to, it plans, tens of thousands of all-electric Model S luxury sedans—with an impressive EPA driving range of up to 265 miles.

And, in what may be surprising to anyone who’s ever bought a new vehicle or been involved with the industry, there’s one other key difference: Tesla plans to do it entirely without traditional dealership franchises.

Instead, it’s building on the success of the ‘store’ strategy fine-tuned and carefully expanded by Apple—fine-tuned actually through the same person who’s now Tesla’s VP of sales and ownership experience, George Blankenship.

But through the years, other such attempts to sell cars from an automaker directly to the consumer have fallen flat. When we caught up with Blankenship last week, just before the opening of the electric automaker’s new Portland store, we asked him why the company is going about retailing its vehicles so differently.

“It’s sort of been that way for a hundred years; that is the model,” said Blankenship. “The model is that they do a bunch of research, hold a bunch of focus groups, and they decide that this is a car we should build; they design that car, they engineer it and manufacture it, and then they sell it to some dealer who then tries to sell it.”

“And it works, it works with thousands of cars sold every single day,” summed Blankenship, who pointed to Tesla’s different development process and revolutionary product. “That’s just not how we’re doing it.”

As we outlined last week, Tesla’s store strategy is clearly working—for informing new people about electric cars, bringing new people into the Tesla fold, and eliciting deposits on the Model S. The automaker has been hitting 11,000 visitors or more in a single week at at least one of its stores, and among its new stores designed around foot traffic it passed a million visitors so far in 2012.

Stores, not dealerships. Does it matter?

But wait. Aren’t dealerships—and our franchise system over them—highly regulated by the states? How can Tesla sell cars this way?

According to Leonard Bellavia, a franchise lawyer and expert in this field, they can’t—even when they avoid following a conventional dealership model. And while the money might not technically change hands at or to the dealership, Bellavia still believes that state and local governments may decide that such ‘factory stores’ can’t operate in their current way.

“Most states prohibit ‘factory stores’ and that is why Tesla is quick to point out that it doesn’t sell cars but rather refers customers to its website,” said Bellavia. “The problems it will encounter stem from the fact that the ‘selling’ of a vehicle does not require the actual signing of a contract and the taking of money.”

Selling, as used in relation to these state statures, generally also includes a long list of associated activities like displaying, test driving, or even demonstrating a vehicle’s features, Bellavia notes. “Tesla admits that it will facilitate the delivery of a vehicle in its locations, which also constitutes ‘selling,’” he adds.

“Every single state, every municipality, that a car company does business in, has a different set of rules and regulations,” said Tesla's Blankenship, who noted that the company’s strategy has of course been vetted by their legal team. “What I know is that we do what we can do in every area, we comply wherever we go and do what we’re allowed to do.”


 
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