and read lane markers), how frequently Tesla beams software upgrades to
its vehicles (as often as once a month), and the car’s top speed (155 mph, 0
to 60 in 2. 8 seconds). “Just by taking a good look at you, I feel like you’re already comfortable with driving a Model S,” he remarks halfway through our
35-minute ride. Yes, that’s what every car salesman is supposed to say, but
he’s right. If I could afford the black, all-electric Model S P90D—which drives
like butter, but costs $108,000—I could see myself following Michael into the
company’s Red Hook, Brooklyn, showroom to buy it, even though until today
I’d never been in an electric vehicle, much less one that could drive itself.
Tesla is betting that if it can get millions of other people like me comfortable with its cars, they’ll want to buy one, too. In fact, Tesla is going to have
to connect with people like me: Its current $33 billion valuation hinges on
the ambitious assumption that the carmaker can not only make superior
long-range electric vehicles, but also convince lots of newbies to buy them.
This task has been complicated by lingering fears over the safety of autonomous vehicles as the National Highway Traffic Safety Administration
investigates a fatal Tesla crash that took place in May. (That’s not to mention
the SEC investigation into how Tesla disclosed the accident.)
Much of Tesla’s success depends on the 2017 launch of its $35,000
Model 3—the first of its futuristic, all-electric luxury vehicles created for the
masses. And the Model 3’s widespread adoption hinges, in turn, on Tesla’s
direct-to-consumer sales model. Tesla has chosen to eschew the traditional
dealership method—in which automakers sell their cars to independent
dealers, who are granted exclusive territories—in favor of company-owned
showrooms staffed with product specialists like Michael, who can talk people
through both the technology and their safety concerns. It’s an approach that
Ganesh Srivats, Tesla’s vice president of North American sales, says is es-
sential. “We knew we couldn’t rely on dealerships to promote our mission,
to operate the business the way we wanted to, to provide this great customer
experience,” he explains. “So we’ve really had to chart our own course.”
For all the talk of Tesla’s product innovations, it is leading another battle:
this one centered on how vehicles are sold, as much as how they’re made.
The company has been embroiled in a series of brutal legislative skirmishes
in more than a dozen states, including Connecticut, Texas, and Michigan—
home to the Big Three automakers—where long-standing franchising laws
handicap (or completely quash) Tesla’s ability to engage customers without
an intermediary. On the opposing side is an alignment of auto manufacturers and dealerships, along with the lawmakers who support them. Whatever
the outcome, it could fundamentally change the way cars are sold in the U. S.
Car dealerships have been the backbone of the automotive industry since
the 1950s, when the Big Three—General Motors, Ford, and Chrysler—were
pumping out around three-quarters of the world’s cars from their mammoth
Michigan plants. While they focused on designing and mass-producing
vehicles, their franchised sales operations reached customers across the
country. At the same time, dealer associations pushed state legislatures
to enact franchise laws designed to protect dealerships from coercive and
arbitrary practices by manufacturers—with the added benefit that customers’ interests would be served by increased competition among franchisees.
But, over time, automakers have become disconnected from the sales experience, hindering both dealerships and the brands they represent. Today,
consumers increasingly want to research and even buy their cars online: A
2015 survey by Accenture revealed that 75% of respondents would consider
conducting the entire car-buying transaction online if they could. “When
you go to a dealership, there’s all this sort of doubt about the process,” says
Srivats, who was senior VP at British fashion house Burberry before joining
Tesla last summer. “The haggling, all the nastiness around it. Did I pay the
same amount as the next customer? Did I get tricked?”
Tesla fashioned its retail model in response. Its 40,000-square-foot,
STATE BY STATE
One of Tesla’s appeals is its direct-to-consumer sales
approach. The problem? That model violates many U.S. states’
laws. Below, some of Tesla’s biggest battlegrounds.
Detroit’s state is simply not having Tesla’s distribution model. In 2014, Governor Rick Snyder
signed legislation that bans carmakers from
selling their own vehicles. Tesla has been vocal
about its intentions to get the law overturned
and, further drawing attention to the issue, has
applied for a car-dealership license in the state.
Since the Lone Star State’s laws restrict direct
sales, potential Tesla buyers can’t purchase
from company galleries and have to make
appointments for test drives in advance. Tesla,
however, has been wooing the state legislature
in hopes of getting a bill supporting its
A state law mandates that automakers can only
open a franchise if no other dealers are in the
community. Tesla struck a deal with Virginia in
2013 to operate a single sales location. The company’s recent application for a second license,
however, was met by a lawsuit from the Virginia
Automotive Dealership Association.
Tesla has petitioned the Connecticut legislature for a direct-sales exemption, but has been
shut down after lobbying from dealers and GM.
Customers who visit the single Tesla gallery,
in Greenwich, must order their vehicles online,
receive them through New York or Massachusetts, and then reregister them.
New York threatened to force Tesla to either
franchise or close down Manhattan locations
several years ago, but Tesla managed to
negotiate a five-store cap for the state.