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The Tesla Phenomenon: Is this the Future of Car Buying?

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author photo by Josh Sadlier March 2014

Why is Tesla all over the news lately? Because it doesn't sell cars the way other car companies do, and there's a growing backlash among car dealers.

Okay, so what are the dealers so upset about? In simplest terms, Tesla sells its all-electric line of cars kind of like Apple sells computers: You go to a "store," pick out the model you want, and boom, you're done. The problem is, that's generally not the way cars are supposed to be sold in this country. According to decades-old legislation in many states, automakers may only sell their cars to the public via independently owned and operated franchises, which we know as dealerships. Tesla's trying to eliminate the middleman, in other words, and now the dealers are fighting back. Understandably so, by the way -- without the franchise laws, car dealers would be in a tough spot.

How are they doing that? By legally challenging Tesla's right to sell cars, state by state. According to a ValueWalk.com report, Tesla sales have been banned outright in Arizona, Maryland, New Jersey, Texas and Virginia, while Colorado and Georgia have imposed restrictions. As this story went to press, New Jersey had just imposed a ban of its own, and similar actions were being contemplated in Ohio and New York.

So is it only a matter of time before Tesla's banned everywhere? Not at all. According to the same ValueWalk.com report, three states -- Massachusetts, Minnesota and North Carolina -- have dismissed dealer attempts to bar Tesla sales, affirming the company's right to sell direct. And in the 40 or so states we haven't mentioned yet, including green-car hub California, Tesla's business model has not been challenged. That means most of the country is effectively on Tesla's side, at least for now.

How's it going to play out, then? We'll be fascinated to find out. One important factor at present is Tesla's minuscule sales relative to established automakers -- the company's building cars at a rate of barely 20,000 units per year. That means franchised dealers aren't losing much business, even in states where Tesla can sell as it pleases. But what happens when Tesla brings out its long-awaited mainstream electric car, with a target base price of $35,000 or so? Sales could really pick up at that point, and we might see dealer alliances all across the country raising legal challenges. Or, perhaps by then some states will have struck down their franchise laws, which many observers believe are no longer beneficial to the consumer anyway. If that comes to pass, it'll have major implications for how we buy cars in the future.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
The Tesla Phenomenon: Is this the Future of Car Buying? - Autotrader