Coming on the heels of New Jersey banning direct auto sales – blocking Tesla Motors Inc (NASDAQ:TSLA) from conducting business in the garden state – Elon Musk fires back with an impassioned letter to residents of New Jersey, directly attacking Gov. Chris Christie.
Musk accuses Gov. Christie of "backroom deal" with auto lobby
“Governor Christie had promised that this would be put to a vote of the elected state legislature, which is the appropriate way to change the law,” Musk writes. When it became apparent that Tesla might prevail over the auto dealer lobby, who was pushing for the Tesla direct sales ban, Musk then accused the powerful lobby of cutting “a backroom deal with the Governor to circumvent the legislative process and pass a regulation that is fundamentally contrary to the intent of the law.”
Musk appears not to be taking the issue lying down, as the letter indicates further action may be around the corner. “We are evaluating judicial remedies to correct the situation,” he wrote.
Conflict of interest with auto dealers: "We don't make money when the car breaks"
When addressing why Tesla Motors inc (NASDAQ:TSLA) didn’t sell through auto dealer networks, Musk was clear. “Auto dealers have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none. Moreover, it is much harder to sell a new technology car from a new company when people are so used to the old. Inevitably, they revert to selling what’s easy and it is game over for the new company.”
Up against significant odds, Musk asks “When has an American startup auto company ever succeeded by selling through auto dealers?” Then he answers his own question. “The last successful American car company was Chrysler, which was founded almost a century ago, and even they went bankrupt a few years ago, along with General Motors. Since the founding of Chrysler, there have been dozens of failures, Tucker and DeLorean being simply the most well-known. In recent years, electric car startups, such as Fisker, Coda, and many others, attempted to use auto dealers and all failed.”
Musk says that an even bigger conflict of interest with auto dealers is that they make most of their profit from service, but electric cars require much less service than gasoline cars. “I have made it a principle within Tesla that we should never attempt to make servicing a profit center. It does not seem right to me that companies try to make a profit off customers when their product breaks,” he writes. “Overcharging people for unneeded servicing (often not even fixing the original problem) is rampant within the industry and happened to me personally on several occasions when I drove gasoline cars.”
Going forward the existing Tesla Motors Inc (NASDAQ:TSLA) dealerships will be used for service and the stores will transition to being “galleries,” where customers can see the car and ask questions of our staff, but we will not be able to discuss price or complete a sale in the store. Ordering the car can take place in Manhattan, the river in Chelsea or their King of Prussia store near Philadelphia.