Over Tesla’s 20 years in business, the company has ruffled a few feathers from those who want to maintain the status quo. Of course, traditional automakers and fossil fuel companies were opposed to Tesla’s very existence from the beginning, for obvious reasons. Tesla showed the world that EVs could be both practical and fun. Traditional carmakers saw the writing on the wall but couldn’t come up to speed with EVs quickly enough, so they continued to seed FUD (Fear, Uncertainty, and Doubt) in order to buy some time to catch up. And since EVs run purely on electricity, the need for fossil fuels will diminish as EVs take hold. So, the fossil fuel industry also did its best to limit the company’s success. And yet, despite these powerful foes, Tesla thrives.
But one of Tesla’s most aggressive adversaries is an industry that probably outlived its usefulness years ago: third party car dealerships. While automotive franchise laws were originally intended to protect consumers, today they serve mainly to maximize dealer profits. Dealership rules stifle competition through exclusive territory arrangements, and inhibit innovation by preventing new players from entering the automotive market. Third-party car dealers oppose Tesla for two reasons: Tesla sells directly to consumers, bypassing the need (and extra costs incurred) for a third-party dealer network, and Tesla exclusively sells EVs, which require significantly less service than cars with internal combustion engines.
EVs include 90% fewer moving parts than traditional ICE cars. They require no oil changes, tune-ups, or transmission maintenance (there is no transmission). Also, regenerative braking assures that brake rotors and pads last far longer than they do in ICE cars. Car dealerships make roughly half their profits from service and parts: as much as they make from new car sales, used car sales, car loans, and extended warranties combined. So, as Tesla succeeds in showing the world that EVs can be both practical and popular, and as traditional carmakers get onboard with the EV revolution, car dealer networks stand to lose a huge chunk of their profits.
Car dealers hold significant sway with federal and state governments. The National Auto Dealership Association PAC alone donated over $2.5 million last year to politicians in national races who were friendly to their cause. This political influence has perpetuated the independent franchise model for automobiles beyond its useful lifetime. We, as consumers, have the right to buy our iPhones directly from Apple, and our computers directly from Lenovo and Dell (or Apple). Why are cars different? Dealer representatives claim the independent dealer model protects the consumer and lowers prices, yet most consumers rate the buying experience at traditional car dealerships as “torturous.” Most consumers would prefer to stand in line at the DMV or even get dental work rather than buy a car at a dealership.
Tesla offers a contact-free online car-buying experience with no need for negotiation or haggling. The price posted is the price you pay. The “salespeople” at Tesla showrooms are salaried employees, not commissioned contractors who only make money when they sell something. And this leads to a less stressful buying experience for the consumer. But Tesla continues to fight these special interest groups who are hell bent on maintaining the status quo. This battle has limited the company’s ability to build out its own local presence by establishing new showrooms and local service centers. But recently, Tesla has begun fighting back against these groups in a creative and unexpected way.
Partnering with Tribal Nations
Tribal Lands or “Reservations” are sovereign nations which exist within the borders of traditional U.S. states. Currently, 39 of the 50 states include at least one tribal nation. As sovereign nations, tribal lands are not subject to state and local jurisdiction or restrictions. Beginning in 2021, Tesla began partnering with individual tribal nations to build new showrooms within states that are prohibiting or restricting the company’s direct sales model. The first Tesla showroom and service center in a tribal nation opened in Nambé Pueblo, north of Santa Fe, New Mexico. The company opened a second showroom in New Mexico on the Santa Ana Pueblo in June of this year.
The next Tesla showroom to be built on tribal lands will be located on the Mohegan tribe’s native lands in Connecticut at the Mohegan Sun Casino and Resort. Tesla has been embroiled with the Connecticut car dealership association in a multi-year legal battle to allow the company to sell cars directly in the state. By building the showroom on native lands, Tesla will be able to reach new prospective customers in Connecticut without violating state laws. That showroom is expected to be completed some time this fall.
Even some “Tesla-friendly” states like New York have state-wide caps on the number of showrooms Tesla is allowed, so Tesla partnered with the Oneida nation in upstate New York to build a Tesla showroom to serve the Oneida nation as well as customers throughout upstate NY. That showroom is expected to be completed in 2025. In addition to sales and service, the project includes Tesla Superchargers to accommodate EV drivers on road trips through the area.
Tribal nations benefit from these projects with new jobs and revenue from both taxes and increased tourism. Taxes vary in different sovereign nations, but in the case of the Oneida showroom, the sales tax that would normally go to the state on the sale of Tesla vehicles will be paid instead to the Oneida sovereign nation. County taxes are paid by the buyer according to the county in which they reside. Tesla benefits by increasing its exposure, increasing sales, and improving its service network. But states lose out on the sales taxes that they otherwise would have collected had the store been built outside the reservation.
Will building Tesla showrooms on tribal nation grounds become the norm? Or will states wake up to the fact that direct sales of EVs represent the future and give up on the outdated dealership model? Only time will tell.
Got an opinion on this move by Tesla? Let us know in the comments.
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