Loopholes For Electric Cars?

Tesla Motors breaks away from the traditional sales model

19 June 2013

Electric cars are getting a lot of attention these days, but how many really understand the ins and outs of owning one? When it comes to charging, maintenance, and explaining its environmental advantages, there are only a trained few who can inform consumers on how it all works. While one company, Tesla Motors, seeks to fill that need by providing product, service, and education directly to customers through a showroom model, similar to the Apple store, there are U.S. state laws in place that can stop the company from getting the traction it needs.

Because of strict state-by-state auto dealership association laws, car manufacturers are restricted from selling their vehicles directly to the consumer. All manufacturers must sell their vehicles through a third-party vendor, otherwise known as a dealership. Think of it like Apple only being allowed to sell its products through a big box store such as Best Buy.  And while most manufacturers in the United States oblige in order to avoid lawsuits, Tesla—the all-electric car manufacturer—is not interested in playing by the rules.

Rather than opening a dealership with hundreds of cars on the lot and salespeople who work on behalf of the dealership and not the manufacturer, Tesla decided to bypass the third-party model for what it considers a more efficient way to sell its cars. Its showrooms are located inside malls and storefronts and customers can learn about the vehicles by using touchscreens on the walls or by watching videos of robots assembling the cars on the manufacturing floor.

Customers can interact with the vehicle and play with the tech features on the dashboard. The showroom computers inform customers how long they need to charge their vehicle and approximate how much of their home electricity charges would be based on charging their car for their daily commute. Salespeople stand in the background in case customers have questions or would like to schedule a test drive. The idea behind the showroom is similar to walking into any other type of store, whether shopping for new sneakers or the latest iPad. If online is more convenient, the car can be ordered directly from the company’s website and will be delivered to the new owner’s driveway, which no other manufacturer in the United States currently offers.

Tesla’s vice president, Diarmuid O’Connell, told ABC News, “We simply believe that to successfully introduce this technology to the market, it needs to be done in a focused fashion, by us.”

However, auto dealership associations are not sitting back quietly as Tesla reinvents how cars are being sold in the United States. Texas, North Carolina, and New York have all brought on lawsuits, and Tesla continues to find itself restricted on how it sells its cars throughout the country.

In Texas, the auto dealership laws restrict Tesla from selling its vehicles directly to consumers, and furthermore will not allow customers to test drive the cars or receive a price quote in showrooms located in the state. While Tesla is making attempts to negotiate by offering to open a manufacturing plant in the state, the state legislature will not meet again on this issue until 2015.

North Carolina is issuing a bill that, if passed, would not only make it illegal for Tesla to sell cars directly to consumers, but also restrict Internet sales to its residents. The law could go so far as to not allow Tesla to send emails directly to consumers, whether announcing company updates or thanking their customers for their purchase.

Tesla has some wins under its belt. It won lawsuits in New York and Massachusetts, where there are now three showrooms in New York and one in Massachusetts that allow direct sales to customers. In the case of Massachusetts, the judge dismissed the case stating that the law did not apply to Tesla because the company did not have existing franchised dealerships in the state and is therefore free to open its own stores and sell directly to consumers. In New York, the judge ruled that dealers cannot utilize the state’s Franchised Dealer Act as a means to sue their competitors.

While proponents of auto dealership association laws say that all car manufacturers must abide by the rules within each state and that this is not a personal attack against Tesla, other auto manufactures are arguing to get rid of the laws altogether. They claim that if auto dealerships were eliminated, the cost of distribution would go down, which can raise the price of a car by about 30 percent. General Motors supports changing the laws because of its successful streamlined purchasing model based on the one it uses in Brazil, where customers can order the car online and have it delivered to their driveways.  This reduces the extra step of transporting cars to the dealerships.

While Tesla continues to fight its battles in the United States, it is opening stores throughout Asia, Australia, and Europe. Tesla is projected to sell 30 000 vehicles internationally in 2013 with an average price tag of US $70 000.

In Germany, Tesla outsold all three German-made cars in the same class: Audi, BMW, and Mercedes-Benz in the first quarter. Despite competition with the country’s native manufactured vehicles, Tesla currently has a showroom in three of Germany’s major cities. China, the world’s largest auto market, is also opening its doors to Tesla later this year thanks to a new government policy promoting electric car sales in the country.

With technology changing the way we drive, is it time to remove restrictions on how we buy cars? What steps should the United States take to get more electric cars on the road?

For more on how IEEE is involved in advancing electric cars, visit IEEE Transportation Electrification

Photo: Tesla Motors

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