Tesla CEO fights for new electric-car sales model in U.S.

DETROIT/AUSTIN, Texas Tue Jun 4, 2013 11:35pm EDT

CEO of Tesla Motors and SpaceX Elon Musk speaks during a session titled ''To Infinity and Beyond: Jeff Skoll talks with Elon and Kimbal Musk'' at the Milken Institute Global Conference in Beverly Hills, California April 29, 2013. REUTERS/Fred Prouser

CEO of Tesla Motors and SpaceX Elon Musk speaks during a session titled ''To Infinity and Beyond: Jeff Skoll talks with Elon and Kimbal Musk'' at the Milken Institute Global Conference in Beverly Hills, California April 29, 2013.

Credit: Reuters/Fred Prouser

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DETROIT/AUSTIN, Texas (Reuters) - Elon Musk, the chief executive of electric carmaker Tesla Motors Inc, criticized the traditional way of selling cars in the United States and indicated the model would hamper the 10-year-old U.S. automaker's growth prospects.

Tesla is pushing to sell its Model S electric sedan directly to consumers rather than relying on a network of independent dealers. These efforts have met stiff resistance from dealer groups around the country.

"The auto dealers association is definitely creating some problems for us, making it harder to get things done," Musk said during Tesla's annual meeting on Tuesday.

The annual meeting comes after a string of positive news in the last month for Tesla, including its first-ever quarterly profit and a near-perfect score for the Model S from the influential Consumer Reports magazine.

As a result, Tesla shares have nearly tripled this year. On Tuesday, Musk said the company's gross margins could approach those of sports-car maker Porsche AG "over time."

Tesla is now beefing up its sales operations in anticipation of growing Model S sales. The company expects to have 50 stores by the end of the year, up from 34 during the first quarter.

Musk has said that traditional dealers may not be the best advocate for electric cars because they rely largely on gas-powered vehicles for revenue. Musk said Tuesday that consumers were broadly supportive of direct-to-consumer sales.

He told shareholders that the traditional dealer model has not worked for other auto start-ups, including Fisker Automotive and Coda Holdings, which filed for bankruptcy last month.

"It didn't work for Fisker, didn't work for Coda. In the last 90 years, when did it work?" Musk said at the meeting in Mountain View, California that was also broadcast online. "We have to do this directly."

David Hyatt, vice president of public affairs for the National Automobile Dealers Association, disputed Musk's comments, saying the troubles facing Fisker and Coda did not stem from their sales models.

"Industry experts say Fisker failed because it rushed its product to market before engineering problems were resolved," Hyatt said in a statement. "Coda did not receive government loans and was under-capitalized.

"Thank goodness there are independent dealers left to try to help the customer," he added. "Manufacturers and brands may come and go, but the dealers are there for the long term."

Most U.S. states do not allow manufacturers to sell new cars directly to consumers. A pair of bills that would have allowed such sales in Texas failed to make it to a floor vote in the state legislature before its regular session ended on May 27.

"Honestly, it was a hard bill to pass anyway and I knew that when I filed it," said Democratic Representative Eddie Rodriguez, who proposed the bill in the House. A companion bill was introduced in the Senate by Republican Senator Craig Estes.

"It was very different than what the current system is. I knew it was going to be a challenge," Rodriguez said, adding "the dealers are a pretty strong lobby group."

(Reporting by Deepa Seetharaman; Editing by Carol Bishopric, Dan Grebler and Matt Driskill)

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Comments (11)
brotherkenny4 wrote:
It’s really funny to watch these realitive younsters who think that freedom and liberty and a free market even exist. Well, the national dealers association will show them that big government is really about controlling markets for the people who are already wealthy. They have no plans of ever allowing real competition. Sure, the GOPers claim they are for all that stuff, but their actions let us know they never really have been for freedom, liberty, or a free market. That goes for the DFL too. Again, you need to buy the politicians, and if you don’t, you will fail.

Jun 05, 2013 9:41am EDT  --  Report as abuse
compute wrote:
Who is going to service your Tesla if there are no dealer locations?
Who will perform warranty work on your Tesla if there are no dealer locations?
And if there isn’t a network of dealers every 300 miles you will not even be able to drive your Tesla in for service.
Tesla is great, I love their cars, but if they want to sell directly to the public they need to at least provide licensed service locations for
consumers.

Jun 05, 2013 2:11pm EDT  --  Report as abuse
Leviath4n wrote:
Tell me, sir, how are we supposed to have this “brave new world” with a bunch of scared old people like you in it?

Jun 05, 2013 3:17pm EDT  --  Report as abuse
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