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Tesla CEO Elon Musk Responds To Critics & Dealer Lawsuits

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Elon Musk

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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Comments (8)
  1. Tesla does not sell toy cars.. Nor cars for the rich only. The cars are expensive, but when you bring saved fuel costs into th equation, the cars are not that unafordable. Most reservation holder are ordinary families on an average income. The model s might just be the bet car in the world.

    It has better safety than ordinary cars, better performance, better comfort, less noise, and extremely low dive cost
     
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  2. Bet =best.. Stupid ipad ;-).. The best car in the world!
     
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  3. Sorry, Runar, that might've been a clumsy reference on my part. I was alluding to the American colloquialism about "taking one's toys and going home", not implying that Tesla vehicles are actually toys.
     
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  4. Great review, Mr. Read; thanks for your article.
    But please notice that the apparent "contradiction" between points #1 and #2, does not really exist: he has stated two separate issues, both unfair, one that favors EVs and the other favoring gas cars. At no point he has intended to sum up the balance of the two, as the issues are so distinct that it would be difficult to weight one against the other.
     
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  5. Hmm, I'm not entirely sure I agree with that reading. In point #1, Musk says that dealerships can't educate customers about Teslas without diminishing the importance of traditional cars. That's based on the assumption that, given the chance, consumers will always perceive Teslas as superior rides.

    In point #2, however, he says that customers can't be persuaded to buy Teslas because they've already made their purchasing decision before they reach the showroom -- and since Tesla's brand awareness is low, its vehicles aren't up for consideration.

    So, if no one's going to consider a Tesla anyway (point #2), how is Tesla's apparent superiority (point #1) even an issue?

    It's not an unsalvageable argument, just oddly stated. My $0.02.
     
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  6. "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."

    Richard, the charging equipment is actually built into the Tesla Model S. All that is needed is a 240V/40A outlet in your garage, identical to the type used for an electric dryer.

    The public charging infrastructure for the Model S is actually quite extraordinary. Tesla is installing 100 "Supercharger" stations in high traffic areas around the country. These will add 150 miles of charge in 30 minutes - about eight times as fast as the garage outlet. And these Superchargers are FREE. When the system is built out, Tesla owners will be able to travel coast-to-coast at no cost.
     
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  7. To add to my prior post... I believe Elon is correct. I think a dealer would be conflicted if the Model S was put side-by-side with a luxury gas-powered sedan in the same price range.
     
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  8. I sell the LEAF for a downtown LA based Nissan dealer. I only sell the LEAF, I won't touch the ICE cars. Given the discussion regarding points 1 & 2, I have some views based on experience.

    Pretty much all of my customers have done the research online, or they have talked to existing LEAF owners. I really can't point to a single one who was browsing and got interested in the LEAF.

    When I was an activist for EVs prior to becoming a salesman for them, I wrote often that the reason the OEMs were against EVs is that in order to market them properly, they would essentially have to denigrate the rest of their product line. You can see how true this is by the lack of effective advertising for plug-in cars.
     
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