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Tesla CEO Elon Musk Responds To Critics & Dealer Lawsuits

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Elon Musk

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They say all press is good press, but Tesla Motors might beg to differ. 

The past couple of weeks, the start-up automaker has been under fire. The attacks began when Governor Romney dubbed Tesla a "failure" in his first debate with President Obama. A few days later, everyone was talking about Tesla's unusual sales model and how dealerships in four states were taking the company to court.

Tesla hasn't officially responded to Romney's claim -- perhaps because so many analysts and fans have done so on the company's behalf. However, CEO Elon Musk has addressed the latter issue in a new blog post that explains Tesla's "approach to distributing and servicing cars". (He probably would've responded sooner, if he hadn't been so busy watching his Dragon rocketship dock with the International Space Station.)

Musk's rebuttal is short and sweet. Ultimately, he makes three key points about why Tesla has bypassed the traditional automaker-dealer model, relying instead on its website and a growing network of showrooms to sell its electric cars:

1. Distributing Teslas through conventional dealerships would give electric cars like the Tesla Model S an unfair advantage. Musk conjures up the image of a dealer who sells both conventional vehicles and Tesla's electric cars. In explaining the awesomeness of electric vehicles, this hypothetical dealer would necessarily undermine the value of her conventional, combustion-engined cars.

(This is Musk's weakest point, since it assumes that every shopper would be persuaded by the argument that electric cars are superior and without shortcomings. In our opinion, once shoppers factor in the cost of charging equipment and the relatively small out-of-home charging infrastructure, it's not such a clear choice.)

2. Distributing Teslas through conventional dealerships would put electric cars like the Tesla Model S at an unfair disadvantage. Musk says that "By the time most people decide to head to their local dealer, they have already pretty much decided what car they want to buy". By this line of reasoning, since Tesla's cars are less well-known by the public, shoppers would be less open to learning about them on the spot.

(Yes, this is pretty much a complete contradiction of point #1 -- thanks for noticing. However, points #1 and #2 have one thing in common: both fail to address the possibility of Tesla opening its own branded dealerships and assume that Tesla's only distribution model would involve partnering with existing dealerships.)

3. Distributing Teslas through conventional dealerships isn't necessary because the franchise laws that dealers have used to attack Tesla simply don't apply: "Automotive franchise laws were put in place decades ago to prevent a manufacturer from unfairly opening stores in direct competition with an existing franchise dealer that had already invested time, money and effort to open and promote their business... We have granted no franchises anywhere in the world that will be harmed by us opening stores."

(This is nicely put, and it points up the fact that Tesla is clearly following the spirit of state franchise law. Musk's argument that Tesla is also following the letter of the law may be a bit harder to make in court.)

But the most interesting part of the whole post comes as Musk closes out his third point. Specifically, he says that franchise laws aren't a problem in most of the world, "where almost three quarters of premium sedan sales take place". Perhaps he's scolding the U.S. for its outmoded legal code, or perhaps he's threatening to take his high-priced electric toys and go elsewhere. Only time -- and our legal system -- will tell.

Are Musk's arguments persuasive to you? Do they adequately address the criticisms from dealers? Let us know your thoughts in the comments below.

 
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