Over a week ago, Tesla announced the arrival of the long-awaited $ 35,000 model 3 sedan – but also revealed it would close almost all its retail channels and move to online sales.
The second part was met by shock and jeers, but Tesla is serious. And the move can be brilliant.
I admit I didn't think it first. Tesla does not use franchise dealers, like all other major manufacturers selling in the United States. Instead, Tesla favors direct sales and has faced stiff opposition from car dealers in a number of states (car sales laws are state-by-state, as Tesla has been granted direct sales permission in some of them).
I asked CEO Elon Musk about this on a controversial conference call with the media after the announcement, and he said he expects repayment from established dealers who will not allow a nationwide online end-round around the franchise law. If they were in Tesla, they would interfere with interstate trade ̵
"Good luck with that," he said.
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After the advertising, I thought through the implications. In the United States, states are often seen as "laboratories" for legal changes that may later become national. The federal government is watching the trials. A good present example is marijuana legalization. Finally, if enough large states go that route, there may be legal fertilizer throughout the United States.
My theory had been that Tesla was doing a sales search experiment and that one day there might be a requirement for a federal exception. Truly I thought it would fail, mainly because every time a large car dealership has tried to cut out dealers, the dealers with their strong allies in the local government and in Washington have fought back.
I realized that Tesla would accept a hybrid model, with direct sales in some states, but eventually franchise dealers in others.
They could also have turned this over and concluded that it would be better to take the chance and put their own solution. "People want to buy things online," Musk told me. And he's right. In addition, a large number of Tesla sales have already been made mostly online, and the broader auto industry has explored more streamlined, frictionless ways to provide buyer advice, pair car buyers, arrange test stations, and modernize the time-consuming dealer-centric financing and insurance part of process.
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Therefore, I now think that the only online sales effort makes sense. It's classic Tesla: risky, but if Tesla succeeds, the big car manufacturers would have more ammunition to modify the franchise system than they have before.
I also came up with another theory why Tesla does this: Tesla intends to fail.
The company already operated over 300 stores, and a hard business analysis might conclude that with online sales was widespread with just about everything except cars, and with Tesla turning down resilient resistance to direct sales, it simply wasn't "It's not smart to continue fighting with a losing battle and following a sales model that was off-putting to customers.
Running a negotiation network is tough, after all, and if you're trying to do it yourself – and the big ones Car manufacturers don't – it's also quite expensive. So Tesla might have decided to settle down. Give a web-based approach a shot. If it works, great.
And if it doesn't, well, there are big national reseller companies that operates franchises in many states that can take over Tesla's business companies such as AutoNation and Penske Automotive Group, a partnership will make it much easier for Tesla to bring vehicles to customers even if it would of course miter Musk's desire to vertically integrate Tesla's business and be able to degrade Tesla's profit (although I think Tesla could be more profitable if it relieved some sales and production to outside contractors).
Now you can say I overthinking this decision and you can be right. But it's a big deal – bigger, really than the arrival of model 3. While Tesla is great and car design, technological innovation and crowdsourced marketing, it fights with production, logistics and fulfillment – the boring, blocking and tackling stuff like the rest of the automotive industry has perfected.
Tesla could use some excuses to lose that skill. But the company must work out ways to do what does not make Tesla look like it is not Tesla.