Tesla Motors Inc: Sales Model Will Lead To Higher Prices

Tesla Motors Inc: Sales Model Will Lead To Higher Prices
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Tesla’s sales model of selling cars directly to customers will eventually result in higher prices if the automaker is allowed to move forward in Michigan, said the chairman of the National Automobile Dealers Association on Wednesday. Tesla has about 260 retail locations or galleries in the United States, but not a single one is operated by a franchised dealer.

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Competition between dealers leads to lower prices

Automotive retail is different from other types of retail because frequently the transaction involves the purchase of a used vehicle that the consumer is trading in and bank financing, noted NADA Chairman Jeff Carlson. He says that competition between dealers results in lower prices, notes the Detroit Free Press. According to a study that NADA commissioned, competition results in a price reduction of about $700.

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According to the Detroit Free Press, Carlson said at an event hosted by the Automotive Press Association in Detroit that every state has to decide what is best for its consumers.

“Either they can continue to support the franchised dealers’ discount of up to $700 … or, the choice for the policy makers is they can offer the consumer a vertically integrated model that prices vehicles at retail.”

Last week, Diarmuid O’Connell, Tesla’s Vice President of Business Development, said it is quite unfortunate that residents of Michigan who own Tesla vehicles have to drive to Illinois or Ohio to have their cars serviced.

Tesla in a legal battle with Michigan

Last month, the electric car maker filed a lawsuit in federal court against Michigan officials. The suit escalated Tesla’s multiyear battle to sell cars directly to consumers in Michigan. The EV firm alleges that the state legislature adopted a law that bars it from doing business in Michigan.

Noting that Tesla’s lawsuit against the state is in the early stages, Carlson said it will still be the decision of the state to regulate the industry.

“The public policy makers are going to go to the consumers and say which (model) do you want? The discounted product? Or the product at retail?”

The NADA chairman also talked about the memo in which Tesla CEO Elon Musk told employees to follow their “no negotiation and no discount policy.” Tesla’s Model X and Model S are priced between $115,000 and $75,000, and the electric car maker intends to release a new Model 3 late next year that will be priced at around $30,000 after federal tax credits.

In pre-market trading, Tesla shares were down over 2%. Year to date, the stock is down more than 12%, while in the last year, it is down almost 16%.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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  1. Competition is the correct term. The real competition is not among dealers of the same brand or model, but between different manufacturers. If BMW, MB, Toyota, Honda, Fiat-Chrysler, etc, made a car that you like, you would likely find a similar model made by another company a la Camry and Accord. Similar consumer, similar cars but COMPETITION between companies drives price down, just as competition between dealers.

  2. Whenever a study is commissioned by an entity that has a vested interest in the results, you cannot count on the results being true.

  3. If the author believes this load of crap, he should probably stop writing about anything to do with economics.

    Entire premise is just ridiculous.

  4. Competition between car manufacturers and new technology make prices go down. A dealership is a middleman. Middlemen don’t work for free. Prices go up from manufacturers to consumers when there are middlemen. Does anyone like to pay a middleman when he doesn’t really add any value to a sale?

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