New bill could deal a blow to Tesla’s direct sales model
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Tesla prefers to go direct to consumers and avoid franchise dealerships. Musk feels they wouldn’t be as committed to electric car sales when so much of their business relies on sales of conventional cars |
Last week, Michigan’s House of Representatives voted to pass House Bill 6233 concerning the legality of direct vehicle sales – those that bypass third-party dealerships – on to the Senate and State Governor for approval. This not only impacts Tesla’s preferred sales model in the state, but could set a precedent for other EV developers such as Rivian, Lucid and Bollinger – all of which are currently headquartered in Michigan due to its traditional strength in automotive manufacturing.
The new bill is a revised version of previous legislation that removes special provisions made for Tesla. In the older version of the bill, direct sales were still technically outlawed but Tesla was explicitly permitted to sell cars directly in Michigan if the sale took place in another state, at least on paper. Another crucial point in the older bill permitted Tesla to directly operate its own service centres in the state – a role that traditionally falls to a dealership.
The legislation first arose in response to Tesla taking the state of Michigan to court in 2016 to challenge its right to ban the company from directly selling vehicles to customers and owning its own service centres. In January 2020, Michigan settled with Tesla, leading to the earlier version of the bill that included Tesla-specific concessions to permit the company to operate a pseudo-direct sales and service model.
It’s important to note that the earlier bill only permitted Tesla to operate in such a way and makes no mention of other EV companies such as Lucid, Rivian, Bollinger or Lordstown which are looking to pursue similar models. However, had the bill passed in its older form, those companies would probably have used it as justification to force the state to permit them to also operate similar sales and service models.
It is not currently clear why Michigan’s House of Representatives has voted to strike the Tesla-specific concession from the bill. The state’s house is currently controlled by the Republican party, although some Democratic Representatives also voted in favour of the new amendments. It is possible that those who voted to amend the bill were swayed by lobbying in favour of car dealership groups who would have pointed out the threat direct sales pose to their traditional business model.
If the revised bill passes the Senate and is signed into law by the Governor, it will throw a safety net around dealerships to an extent because automakers such as Tesla will have to engage with third-party dealership groups if it wishes to sell cars in the state, along with ceding its servicing operations to those dealerships. However, Michigan’s Governor Gretchen Whitmer and its Senators are Democrats who may oppose the new law because they will be keen to see EV sales in the state increase in line with the party’s stronger stance on reducing climate change.
In a comment to Jalopnik, a spokesperson for Lucid Motors expressed annoyance at the bill, saying it “undermined consumer choice and access to dependable automotive service”. They noted that Michigan consumers consumers had already made their choice clear because “[in 2019] 70% of all EVs sold in the state were sold directly to consumers”.