Tesla Motors Inc (NASDAQ:TSLA) has been fighting with auto dealerships in several states because it doesn’t want to use dealer franchises. The company has been very successful with its direct to consumer model, and arguments can certainly be made that it doesn’t need to have auto dealerships. But Virgil Hilts of The Truth About Cars thinks Tesla should cave to demands that it use auto dealers, saying that it’s all a matter of practicality.
Is Tesla not living in reality?
According to Hilts, CEO Elon Musk just has to “face reality” and stop trying to change laws affecting franchise auto dealerships. He believes that it’s time for Tesla Motors Inc (NASDAQ:TSLA) to “embrace the current system and start signing up existing stores.”
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He claims that he’s not on the side of the auto dealers, but rather, that he just doesn’t see any other way for Tesla to succeed. Musk has been fighting the battle in multiple states and even said in the past that he will take the fight to the federal level if they keep having problems in individual states. But Hilts believes he can’t change the dealer franchise laws in every single state, especially since he is fighting against strong auto dealers who have fought long and hard for these laws.
Hilts also estimates that it would cost Tesla Motors Inc (NASDAQ:TSLA) “half a billion dollars to construct and staff 100 dealerships.” He doesn’t say how he came to that estimate.
Tesla and so-called “experienced car dealers”
He believes that the larger Tesla gets, the more problems consumers will have with the company’s cars, and thus, the more issues that require an auto dealership will arise. He also thinks that Tesla will see its sales starting to fall and suggests that since it has been selling cars to rental companies, this means that retail sales at Tesla “may be softening.”
He believes Musk should just focus on “what he does best and let car dealers do what they do best.” He suggests that the company is setting itself up for failure by not using auto dealers.
Problems with these arguments
Of course what he doesn’t mention is how different Tesla Motors Inc (NASDAQ:TSLA) is from other automakers. There are very few parts on the cars that require fixing on a regular basis, so dealerships may want to block the brand completely because they won’t be able to make as much money on repairs as they do now. As Musk has said, Tesla is a “technology car company,” which means that the old, antiquated way of using auto dealerships might not work at all.
Besides, currently there aren’t any actual franchise dealerships selling the company’s vehicles, which means it is not competing with anyone by setting up its own dealerships. The world would never change if someone didn’t decide to step up and fight for something they believed in. As we move forward, the world has got to change, and industries have got to change in order to keep up with the needs and wants of consumers. Simply saying that it’s impractical to not use franchise dealerships isn’t a real argument. This isn’t to say that we won’t see Tesla vehicles on an auto dealer lot one day, but for right now, the company is profitable and growing without it. And it doesn’t have the huge weight of an extra set of sales guys (in the form of dealerships) hanging heavily on its bottom line.