Tesla Buys a Company in a State Where It’s Barred from Selling Cars(techcrunch.com)
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Tesla Buys a Company in a State Where It’s Barred from Selling Cars
http://techcrunch.com/2015/05/08/tesla-buys-a-company-in-a-state-where-its-barred-from-selling-cars/
46 comments
So why would Tesla even care about sales in Michigan? Musk always implies that Tesla is production constrained (again just two days ago in Q1 earnings call), and Michigan isn't one of the states with ZEV program, so a sale in Michigan earns Tesla $30k less than a sale in California or Massachusetts or the other 8 ZEV states. Selling in Michigan costs Tesla money.
And why is Tesla so against dealers? As long as Tesla is showing the "internet price" then customers can see exactly how much the dealer is higher so buying from a dealer wouldn't even be a bad experience. A Tesla dealer would be more like CarMax, or at worst a Saturn dealership.
I think it's worth considering that Tesla may in fact be demand constrained not production constrained, and that's why they need to sell in these states where they earn less. And they don't want dealers because they are much more transparent about demand.
And why is Tesla so against dealers? As long as Tesla is showing the "internet price" then customers can see exactly how much the dealer is higher so buying from a dealer wouldn't even be a bad experience. A Tesla dealer would be more like CarMax, or at worst a Saturn dealership.
I think it's worth considering that Tesla may in fact be demand constrained not production constrained, and that's why they need to sell in these states where they earn less. And they don't want dealers because they are much more transparent about demand.
> And why is Tesla so against dealers?
I'm not a representative of Tesla, but if I was Elon Musk I wouldn't want my product being sold by dealerships either. The dealership industry is an outdated, parasitic system that has nothing to offer Tesla. It is little more than a middleman which saps away profit that could be going to Tesla itself. On the other hand Tesla has everything to gain in revenue, image, brand value, and consumer experience by running their own boutique stores.
The dealerships have also gone way too far trying to get legislation passed to stop Tesla and protect their parasitic business model rather than adding any real value that makes them useful to Tesla.
That in my opinion turns this into something more personal, a battle in which Tesla wins more respect the more they fight back. By refusing to sell the vehicle entirely they actually gain in status (the more difficult to obtain good gains value) and they progress toward the longer term goal of making profit free of parasitic middlemen. The alternative would be to make a few more dollars in the short term by using dealerships but lose in the long term. The Elon Musk suite of companies has always been very long term focused so I'm not surprised to see them working toward long term vision rather than giving in on a short term battle.
Basically to Tesla the future is selling their goods (not only cars but also Powerwalls, and whatever else they have in development) directly to customers in order to improve profit margin, and they aren't going to give in on the road to making that happen. A boutique store for selling vehicles today can sell Powerwalls the next year. This makes Tesla much more robust instead of being reliant on a middleman.
I'm not a representative of Tesla, but if I was Elon Musk I wouldn't want my product being sold by dealerships either. The dealership industry is an outdated, parasitic system that has nothing to offer Tesla. It is little more than a middleman which saps away profit that could be going to Tesla itself. On the other hand Tesla has everything to gain in revenue, image, brand value, and consumer experience by running their own boutique stores.
The dealerships have also gone way too far trying to get legislation passed to stop Tesla and protect their parasitic business model rather than adding any real value that makes them useful to Tesla.
That in my opinion turns this into something more personal, a battle in which Tesla wins more respect the more they fight back. By refusing to sell the vehicle entirely they actually gain in status (the more difficult to obtain good gains value) and they progress toward the longer term goal of making profit free of parasitic middlemen. The alternative would be to make a few more dollars in the short term by using dealerships but lose in the long term. The Elon Musk suite of companies has always been very long term focused so I'm not surprised to see them working toward long term vision rather than giving in on a short term battle.
Basically to Tesla the future is selling their goods (not only cars but also Powerwalls, and whatever else they have in development) directly to customers in order to improve profit margin, and they aren't going to give in on the road to making that happen. A boutique store for selling vehicles today can sell Powerwalls the next year. This makes Tesla much more robust instead of being reliant on a middleman.
> The dealership industry is an outdated, parasitic system that has nothing to offer Tesla. It is little more than a middleman which saps away profit that could be going to Tesla itself.
Ordinarily, middlemen are great. Small farmers can get away with selling at Farmer's markets, but Supermarkets drive an enormous volume of sales. Likewise, Walmart, Target, Fred Meyer's, etc. are all generally pretty good to their suppliers and customers.
The big difference when it comes to cars it that customers actively hate car dealerships. I don't know of a single person who is even ambivalent towards the process of buying a car.
If Tesla could take that part of the car buying process and make it great, it would be an enormous competitive advantage. Dealerships and the other car manufacturers know this and are terrified that it might work.
Ordinarily, middlemen are great. Small farmers can get away with selling at Farmer's markets, but Supermarkets drive an enormous volume of sales. Likewise, Walmart, Target, Fred Meyer's, etc. are all generally pretty good to their suppliers and customers.
The big difference when it comes to cars it that customers actively hate car dealerships. I don't know of a single person who is even ambivalent towards the process of buying a car.
If Tesla could take that part of the car buying process and make it great, it would be an enormous competitive advantage. Dealerships and the other car manufacturers know this and are terrified that it might work.
I'm not sure what stone you've been hiding under for the last couple of decades, but supermarkets are nobody's friend.
As a supplier, supermarkets impose constraints such as, "your apples must be exactly this size and colour, with no blemishes, and cost 5% less than you charges for them last year. If you fail to deliver the 2T per month that we require, you pay us penalty fees. If we don't sell your apples, you pay for disposal. If we have a special on apples, you'll pay us the difference in price. If you sell your apples anywhere else than our supermarket, we charge you penalties."
No, middlemen are not great.
As a supplier, supermarkets impose constraints such as, "your apples must be exactly this size and colour, with no blemishes, and cost 5% less than you charges for them last year. If you fail to deliver the 2T per month that we require, you pay us penalty fees. If we don't sell your apples, you pay for disposal. If we have a special on apples, you'll pay us the difference in price. If you sell your apples anywhere else than our supermarket, we charge you penalties."
No, middlemen are not great.
All true. However the interesting dimension for Tesla is that they also sell more than just cars now. They would probably have a hard time getting a car dealership to sell a Powerwall, but with their own Tesla branded store they can sell you "the future" with a car + powerwall combo for example.
From that perspective they really have no reason at all to cooperate with dealerships. The car dealerships are too narrowly focused, whereas Tesla is transitioning into more than just a car company, and selling more than just cars.
From that perspective they really have no reason at all to cooperate with dealerships. The car dealerships are too narrowly focused, whereas Tesla is transitioning into more than just a car company, and selling more than just cars.
"What's that? I can order my Model S, my PowerWalls, and my solar installation from you? gets out checkbook"
Dealerships are an outdated relic from a bygone era, like the Electoral College. It's not just about "people hat[ing] car dealerships," the issue is that the dealerships are rent-seeking middlemen between the supplier and the customer.
Tesla did take that process and make it great: They opened showrooms and you just order online at a specified price. Easy! Not the same as dealerships though.
Tesla did take that process and make it great: They opened showrooms and you just order online at a specified price. Easy! Not the same as dealerships though.
Mind citing your 30k number? From most of the things I've seen the ZEV credits are a pretty small percentage of total revenue on a Tesla.
I think the anti-dealer stance comes from dealers not having an incentive to sell EVs when they are familiar with traditional ICE cars. There's been quite a few stories of Nissan having issues with their dealerships not being very interested in selling Leafs for instance.
I think the anti-dealer stance comes from dealers not having an incentive to sell EVs when they are familiar with traditional ICE cars. There's been quite a few stories of Nissan having issues with their dealerships not being very interested in selling Leafs for instance.
It's hard to say how much they make on each car sold because they are purposely obscuring this. If you listen at 6:15 to the earnings call you'll hear them totally dodge a totally straightforward question on how many credits per car:
http://seekingalpha.com/article/3147926-tesla-motors-tsla-q1...
Elon says credits sometimes sell for as little as 50%. They are rumored to be getting 9 credits for most cars sold in ZEV states (most cars in US). Credits are worth $5000 in offset fines. So $22k per car even at heavily discount ZEV prices.
http://seekingalpha.com/article/3147926-tesla-motors-tsla-q1...
Elon says credits sometimes sell for as little as 50%. They are rumored to be getting 9 credits for most cars sold in ZEV states (most cars in US). Credits are worth $5000 in offset fines. So $22k per car even at heavily discount ZEV prices.
I got the impression that, in addition, electric engines are less profitable to maintain because they wear out slower, so maintenance and repair have a much lower profit. Is there any truth to that?
> And why is Tesla so against dealers?
I don't think Tesla is against dealers per se, it just wants to control end-to-end experience like Apple does. It's totally understandable for a high-end manufacturer.
I don't think Tesla is against dealers per se, it just wants to control end-to-end experience like Apple does. It's totally understandable for a high-end manufacturer.
Dealers will need a cut of the profit and due to the laws in the books, once they start using dealers, they cannot forgo them in the future. I think it should be the choice of the manufacturer whether to use dealers or not.
Tesla isn't only selling in ZEV states. Are they also losing money to "prop up" numbers in the non-ZEV states they are selling in?
If Tesla is production constrained then they can sell the same unit in Michigan and get $100k income, or they can sell it in California and get $130k income then use that extra $30k to increase production. So why sell in Michigan?
Because everyone's money is green.
If they're production constrained, they can't do both. Sell one car and make $130k or sell one car and make $100k. Not sell two cars and make $230k.
Hopefully that's true, but auto dealers are huge contributors to elections (even bigger than auto manufacturers - https://www.opensecrets.org/industries/indus.php?ind=T2300 )
Imagine there was a law where the big 3 couldn't sell cars online in CA, and they bought a company that puts internet into cars in SF...
It's probably because they want internet in their cars... not because they are trying to put the state legislature on the arm.
It's probably because they want internet in their cars... not because they are trying to put the state legislature on the arm.
This is huge news for West Michigan. Spoke with some entrepreneurs in Grand Rapids and they were busting with civic pride. There are already rumors that Tesla will make another purchase in West Michigan.
So now Tesla has motivated the economic development people in West Michigan to push to repeal the law that stopped Tesla from selling cars because it will mean more jobs for them.
I predict Tesla will eventually be allowed to sell cars in the state as a result of this purchase so it is a double win for them.
So now Tesla has motivated the economic development people in West Michigan to push to repeal the law that stopped Tesla from selling cars because it will mean more jobs for them.
I predict Tesla will eventually be allowed to sell cars in the state as a result of this purchase so it is a double win for them.
Going vertical on this is a good plan by Tesla management. Stamping dies are hugely expensive, and this will give them lower costs in the long run -- the dies wear out after a certain number of machine operations and have to be replaced.
There's also a trade-secret aspect to this. Since Tesla previously had to farm this out, there was a chance of a competitor seeing their dies at the 3rd party company. Not so now.
There's also a trade-secret aspect to this. Since Tesla previously had to farm this out, there was a chance of a competitor seeing their dies at the 3rd party company. Not so now.
Wonder if there is a move here where Tesla threatens to move Tesla Tool and Die out of Michigan. Not sure if Riviera is big enough for that threat to be viable, and also doesn't seem like a move Elon would make. (Just thinking out loud).
Might make sense to move them to Freemont, or (less so) Reno near the Gigafactory if they can batch shipments from both facilities together.
I hope Tesla immediately moves the business out of Michigan. They should not subsidize, with their taxes, a state that treats them, and its own citizens (who can't buy Teslas), like utter shit.
There's definitely Tesla owners in Michigan. They just buy them in other states and drive them back in. Of course the main issue is the law that disallows corporate owned service centers. Hopefully, either they get the law tossed OR Tesla simply employs a third party to provide service in some manner.
Why punish workers and take their job due to strategic reasons beyond their control? Worst idea I've ever heard.
The mobility we have as white-collar tech employees is rare. A blue-collar Michigander is not going to follow Tesla out of state.
The mobility we have as white-collar tech employees is rare. A blue-collar Michigander is not going to follow Tesla out of state.
> Why punish workers and take their job due to strategic reasons beyond their control?
This is blaming the victim (namely Tesla). The only blameworthy party is the Michigan government and Michigan voters as a whole.
> The mobility we have as white-collar tech employees is rare. A blue-collar Michigander is not going to follow Tesla out of state.
That's false. White collar and blue collar workers are equally free to move around.
This is blaming the victim (namely Tesla). The only blameworthy party is the Michigan government and Michigan voters as a whole.
> The mobility we have as white-collar tech employees is rare. A blue-collar Michigander is not going to follow Tesla out of state.
That's false. White collar and blue collar workers are equally free to move around.
Tesla isn't banned from selling cars in Michigan, they're not allowed to sell manufacturer-direct. No one in Michigan is allowed to sell manufacturer-direct.
> Tesla isn't banned from selling cars in Michigan, they're not allowed to sell manufacturer-direct.
Which means they're banned from selling cars. They have to use intermediaries to sell cars for them.
> No one in Michigan is allowed to sell manufacturer-direct.
Imagine if the recording industry had successfully lobbied for laws that prevented anyone from selling music directly.
"IndieBandFoo isn't banned from selling music in the US, they're not allowed to sell artist-direct. No one in the US is allowed to sell artist-direct."
This restriction is no less ridiculous.
Which means they're banned from selling cars. They have to use intermediaries to sell cars for them.
> No one in Michigan is allowed to sell manufacturer-direct.
Imagine if the recording industry had successfully lobbied for laws that prevented anyone from selling music directly.
"IndieBandFoo isn't banned from selling music in the US, they're not allowed to sell artist-direct. No one in the US is allowed to sell artist-direct."
This restriction is no less ridiculous.
It's similar with beer (all alcohol?) in most states. They have to use a distributor and can't sell directly (except at the brewery). That why beer availability often follows state lines instead just distance.
I don't support the law, but I take issue with journalists that allow Tesla to frame the debate as "barred" from selling cars. They could sell cars through franchised dealerships, and they choose not to.
Tesla is barred from selling cars in Michigan. They are not barred from allowing someone else to sell their cars in Michigan.
That's what he's saying -- the article and comments here are being made in the thrust of "Teslas can't do their primary business in Michigan,".
That's not true. A dealership in Michigan can "buy" Tesla cars, or whatever mechanism exists. "Tesla is refusing to do business in Michigan" would be a clearer way of putting it.
That's not true. A dealership in Michigan can "buy" Tesla cars, or whatever mechanism exists. "Tesla is refusing to do business in Michigan" would be a clearer way of putting it.
Tesla's primary business is selling the cars they build directly to consumers and Michigan has barred Tesla from doing that. To do business in Michigan would force Tesla to change their primary business model.
Selling cars through a dealership is not Tesla selling cars it's the dealership selling cars, it's ridiculous that they cannot sell their own product to consumers without paying a middleman.
Yeah, they are not explicitly saying "Tesla" in the law, but everyone understand it's anti-tesla bill. (Exactly like the anti-uber bills in some cities that are generic but target Uber.)
It's not a law targeting Tesla. The law predates Tesla.
The TechCrunch article mentions a recent law:
"The state’s governor signed a law last October that banned the company from selling its vehicles directly to consumers."
They could easily add an exception for companies that don't distribute through dealership(which has happened in other states) but I doubt you'll see it any time soon.
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What do you mean by no one? Apple has shops in Michigan, no?
They're indirectly making a link between Michigan jobs and Tesla's success. As Tesla gets bigger it'll make that law look like it's holding Michigan's manufacturing industry back rather than helping the state's car sellers defend their businesses. People care about manufacturing jobs a lot more than retailers.