How Do Tesla Get Around Dealership Laws? (Explained)

Tesla has revolutionized the auto industry by manufacturing luxury electric vehicles with unsurpassed comfort, safety, and performance.

Not without obstacles on the way, though!

Despite the acclaim, this innovative automaker faces several challenges in the market, including navigating through dealership laws. 

This article assesses how Tesla handles dealership laws.

3 Tactics Tesla Used to Avoid Using Car Dealers

Let’s start with an interesting one.

#1 No Inventory

Unlike traditional vehicle distribution, Tesla does not have an enormous inventory to sell to franchise dealers.

Instead, they have a backlog and manufacture electric vehicles on request.

Tesla does not want their innovative electric cars lost in the burgeoning fossil fuel-powered vehicles.

However, the buying process is easy, and with a few clicks and documents, your Tesla is delivered to your doorstep.

#2 Using Company-owned Stores and Galleries

Tesla has an extensive range of stores and galleries in high-traffic and visibility areas to educate consumers on electric vehicles. In malls and shopping streets, people are in an open-minded buying mood.

They are more likely to consider an electric vehicle than a car yard with numerous gasoline options.

Consumers have their electric vehicle questions answered and are never pressured to buy the product.

#3 Online Sales

Research shows that purchasing a vehicle is among America’s most dreaded and complained-about chores.

Between shady car salespeople, massive bargaining, and physical showrooms, car buyers are increasingly opting for online car purchases.

Tesla leads other automakers when it comes to e-commerce.

People can purchase Teslas online directly from the manufacturer anywhere, anytime. Online sales pit Tesla against traditional car dealers.

You can even order your vehicle online and have your Tesla delivered to your door!

Did Tesla Get the Laws Around Car Sales Changed?

In most states, franchise laws require independent dealers, not car manufacturers, to sell cars to consumers.

As such, these states ban or limit direct manufacturer auto sales. Alabama, for example, terms manufacturer-owned stores and service centers as ‘unfair and deceptive trade practices.’

Contradictorily, Tesla employs a direct-to-consumer distribution model that does not use traditional dealerships in car sales. 

Although the conventional way of buying cars has been operational for decades, Tesla is challenging it. The giant automaker opts for galleries and stores offering crucial information on electric vehicles. People interested in Teslas order online instead of visiting a local dealership.

Tesla’s model has evoked a negative chord with car dealerships as they feel left out of the profits.

The car dealers use decades-old regulations and laws to stop car manufacturers from selling directly to consumers.

Also, they have lobbied for new laws to prevent Tesla from using direct distribution and have succeeded in blocking Tesla from selling in states like:

• New Jersey,
• North Carolina,
• and Texas.

The dealerships affirm that direct distribution restrictions are fundamental to consumer protection and public safety.

Luckily, consumers increasingly realize that these restrictions protect car dealers, not consumers.

Few states support Tesla’s model due to its significant benefits for consumers –getting rid of the dealership markup and promoting good business practices. Nevertheless, many states oppose the model and enact automotive franchise policies necessitating automakers to use dealerships.

According to these states, dealerships are important because:

1. they promote local businesses,
2. provide employment opportunities,
3. and pay taxes.

According to Tesla, its unique way of selling cars directly to consumers does not change existing automotive franchise laws or defy them.

The existing laws prevent a manufacturer from starting a store in direct competition with an existing franchise.

Since Tesla has not granted franchises to any dealer globally, its stores and galleries do not compete with others or disregard these rules.

Why Does Tesla Refuse to Work With Local Car Dealers?

#1 Conflict of Interest

Tesla’s main reason for not working with local car dealers is a conflict of interest. While auto dealerships make money from car sales, most profits come from regular services like oil and filter changes, fluid checks, and worn-out parts replacement.

However, Tesla vehicles do not need oil changes and fluid checks. Thus, dealerships cannot make money out of vehicle maintenance.

In fact, they render the dealership model obsolete.

Second, dealers would have a conflict of interest in selling gasoline vehicles, which account for a considerable part of the dealer’s business, and new tech electric cars.

Dealers gain more from selling internal combustion engine (ICE) cars because they get a commission from the car sale plus years of maintenance. On the contrary, selling an electric vehicle gives a small commission on the sale only.

Third, one of Tesla’s biggest selling points for its vehicles is the frequent software updates.

As a result, owners do not have to upgrade their cars to the next model year to leverage new technologies. 

While this is an advantage for Tesla owners, it conflicts with car dealers’ interests in selling new vehicles for their tech features. ICE owners tend to buy new model vehicles to get the comfort, safety, and infotainment technologies they missed with their current cars.

Different Product, Different Approach

Electric cars are different from ICE ones and therefore require a different approach to marketing and sale. When someone walks into a local dealer, they already know the vehicle they want to purchase.

Typically, they want a newer model of their current vehicle. What is left is negotiating the price with the dealer. However, Teslas almost never go on sale.

As a result, Tesla barely has an opportunity to educate potential customers about its wide range of excellent electric vehicles in a traditional dealership.

A different approach is needed to give Tesla a fair chance in the eyes of consumers.

What better way to do it than have Tesla-operated galleries and stores to introduce the product to the unfamiliar public?

Owners of the Tesla Model X understand that Tesla is different from gasoline vehicles.

Model X is the best electric car in the market, with stylish falcon-wing doors, exceptional performance, and numerous tech and safety features. 

It boasts the biggest automotive touchscreen globally and adds features and capabilities automatically. Such electric vehicles cannot be sold like standard vehicles (according to Tesla).

New Technology

Many brands introducing a new technology in the market prefer direct sales to consumers. They fret that third parties like local dealers may be unequipped to sensitize consumers about these disruptive products.

This can be the case for Tesla, and they opt to keep their distribution in-house.

The automaker adopts a business model that provides information on EVs in a convenient and no-pressure environment.

Tesla’s Product Specialists are informative, interactive, and incomparable to commissioned salespeople in traditional dealerships.

Can Other Car Brands Also Sell Cars Directly to Consumers?

No. Tesla is the only automaker in the US selling cars to consumers.

Most automakers employ the traditional franchise dealership model and thus cannot sell cars directly to customers. Selling directly to consumers means competing with dealerships already selling their vehicles, harming the dealer’s business.

Considering the dealer has invested time and resources in their store, the automaker would introduce unhealthy competition.

The only reason Tesla can sell directly to consumers is that it has no franchises locally and worldwide. Therefore, its operations do not hurt dealerships directly.

Does Tesla Sell Cars Directly in All States Today?

No. Some states like Texas, Louisiana, West Virginia, and Oklahoma adhere to dealer franchise laws and do not allow Tesla to sell cars directly. People in these states will have to order their Tesla cars through a neighboring state.

However, this does not mean you can’t buy a Tesla in these States. You can still order a Tesla, but the process will be lengthier than in a state allowing Tesla’s business model.

The process begins with ordering a vehicle from Tesla’s website and completing the documentation.

If you live in Texas, for instance, your vehicle will be shipped to a nearby state, allowing Tesla’s direct sale then to a service center in your state.

The process is strange and complex but ensures consumers enjoy electric cars while the automaker complies with the franchise law.

States like North Carolina and New Hampshire permit manufacturers to engage in direct sales.

In 2013, New Hampshire enacted a law to allow automakers without franchise dealers to sell directly to customers.

Similarly, in 2018, Utah permitted Tesla to sell electric vehicles in the state.

Final Thoughts

Car sales in the US follow a franchise dealership model created decades ago, and many automakers comply with it. The traditional model is lucrative and saves the automaker’s time, effort, and money in establishing distribution centers.

Since Tesla is innovation-led, it has crafted a unique strategy and foregone the dealership model, providing customers with more value and cost savings.

The impressive model aligns with the futuristic cars the brand offers!

distribution in-house