Why Grumpy Car Dealers Are Helping Tesla

Why Grumpy Car Dealers Are Helping Tesla
A Model S being driver out of Tesla's factory in Fremont, Calif. on June 22, 2012
Photograph Noah Berger/Corbis

Tesla Motors, in its blistering trip from political punching bag to Wall Street darling—or at least the bane of short sellers—is getting an unintentional assist from an unlikely place: old-school car dealerships that are trying to shut down the company’s straight-to-consumer business model.

Tesla’s 31 retail locations function as “galleries” where would-be buyers can kick the tires before going online, picking extras, and ordering a car. In other words, there’s no haggling over financing deals and floor mats.

That approach may appeal to people who dislike the usual car buying experience. Which is to say, pretty much everyone except other car dealers, who have tried to head off Tesla in at least four states with lawsuits and legislation that would prevent the electric-car maker from owning sites where it sells its vehicles. The fear is that if Tesla succeeds, giant carmakers such as General Motors will be free to open lots and undercut the franchises that sell their vehicles.

North Carolina is being particularly aggressive; the state’s senate unanimously approved a plan this week that would preclude Tesla from even taking orders from its residents online. (The bill still needs House approval.) This, in the home state of that crown jewel of American tech innovation, Research Triangle Park (slogan: “The future of great ideas”).

Whether dealers prevail in North Carolina and other states remains to be seen. Meantime, they are giving Tesla more street cred in its pitch to be the company that revolutionizes the car business.

A Tesla used to be a slick, expensive vehicle with incredible torque. Now it’s all those things plus a sort of forbidden fruit, no doubt an attraction to those in the market for a fancy car.

The protestations also stoke what behavioral economists call the principle of scarcity, the fact that people tend to value more highly things that seem hard to get.

To borrow another analogy, third-party car dealers are acting like strict parents and Elon Musk is the cool kid throwing a rager in his step-dad’s mansion. The dealers might do better to ignore Tesla altogether. After all, they are on pace to move about 15 million vehicles this year, while Musk’s company is hoping to take 20,000 orders.

Meanwhile, the political challenges have provided Tesla a very public forum for crowing about its cars. Musk—no stranger to showmanship—showed up at the Texas statehouse last month to note, among other things, that his buyers don’t need dealers, because his cars don’t need much maintenance.

Dealers have a simple rationale for their opposition: They want to help consumers. They note that laws requiring third-party sellers were originally passed to protect buyers from carmakers folding or wiggling out of warranty payments. But the watchdog argument probably rings hollow to anyone who suffered through an unctuous sales pitch and a watery cup of car-lot coffee.

And let’s not forget, this is America. Anyone who wants to spend more than $50,000 on a sexy and environmentally friendly pleasure machine is going to find a way to do so—even if she has to get in her Benz and drive over the state line to buy it.

Meanwhile, Tesla’s momentum is building. The company posted its first quarterly profit last week, and yesterday it filed a plan to raise as much as $830 million in shares and debt-like securities. Both announcements sent Tesla shares surging, pushing the company’s market value this morning to almost one-quarter that of GM.

Maybe disgruntled dealers should just buy some shares.

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