Most people are afraid of change. Right now, automobile dealers across the U.S. are afraid of Elon Musk.
Musk is the brilliant CEO of Tesla Motors Inc. (Nasdaq: TSLA). His outside-the-box thinking with regard to car sales has left dealers “all dressed up with no place to go.”
With his direct-to-the-customer sales model, he doesn’t need dealers. His Model S sedan received 99 out of a possible 100 points from Consumer Reports.
In my mind, and that of many others, Musk is the Steve Jobs of the auto industry. Jobs reinvented the music business, despite widespread disagreement from the music industry.
Now Musk is facing a challenge from auto dealerships. Many are using their strong lobbying power to try to slow him down.
Musk is determined, however. After New Jersey’s Motor Vehicle Commission voted to prohibit direct-to-customer car sales, here’s what he wrote in a blog post on March 14, 2014: “Democracy is supposed to reflect the will of the people.”
Fighting Against Change
Unfortunately, New Jersey is only the most recent state to effectively ignore the will of the people, at least when it comes to Tesla auto sales. Arizona, Texas, Maryland and Virginia residents are also unable to buy an automobile directly from Tesla.
Several states have come up with ridiculous restrictions instead of outright bans. In Georgia, Tesla’s limited to selling 150 cars. That’s only because of an exemption from Georgia auto dealer rules.
You can test-drive a Tesla in Maryland. If you decide to buy one, you have to go to another state.
The map below is courtesy of Forbes contributor Mark Rogowsky. It shows the states that have bans and restrictions currently facing Tesla.
Make no mistake: The nation’s auto dealers are scared of Tesla. Both individual state dealer associations and the National Automobile Dealers Association (NADA) strongly oppose Tesla’s sales model.
They claim that protecting dealerships is better for consumers. But the dealers also acknowledge that they fear they just can’t compete with a direct-sales model.
“How can we as auto dealers compete with manufacturers in the same market when we are completely dependent upon them for our inventories?” Tammy Darvish, vice president of Darcars, a Maryland-based chain of dealerships, told the Chicago Tribune.
Elon Musk isn’t aiming to be the next Steve Jobs. He’s aiming to be the next Henry Ford. He can easily imagine Tesla being a major car manufacturer in the United States.
That’s a huge disruptive force to other U.S. automakers. It’s especially disruptive to the U.S. car dealer network.
A Simpler Way to Buy a Car
Tesla’s out-of-the-box sales model is simple. Customers visit small storefront locations, usually found in high-end malls.
There, they can sit in an actual Model S sedan. Tesla customer representatives are available to answer questions about the car. This is very similar to Apple stores.
If customers like what they see, they can order their car right there. Customers can also buy their cars online if they prefer.
Customers take delivery at the nearest Tesla service center. One of Tesla’s “Delivery Specialists” explains the car’s features. It’s fully charged and ready to go.
Who wouldn’t want to buy a car like that? It turns out, the majority of Americans would.
The auto dealers aren’t just fighting Elon Musk. They’re fighting the will of the people.
The Triangle Business Journal in North Carolina conducted a poll. It found 97% of respondents said Tesla should be able to sell its cars directly to customers.
The Austin Business Journal in Texas conducted a similar poll. It found 86% favored direct sales. Finally, a Los Angeles Times poll indicated 99% favored the Tesla sales model.
What About the Will of the People?
Given all the hoopla and legal hurdles Musk faces, is Tesla a good investment? Goldman Sachs thinks so.
In a recent report on Tesla, Goldman ascribes as much as a 104% upside to Tesla’s stock price between now and 2025. Shares have climbed 482% in the last 12 months.
Betting against Elon Musk and Tesla is a dumb idea. Betting against the will of Americans is even dumber.
Good investing,
Dave