Tesla's Direct Sales Model Is a Major Competitive Advantage

Tesla's Direct Sales Model Is a Major Competitive Advantage

Tesla's direct sales model is unique in the industry yet already has others following suit. This approach to sales is a strong competitive advantage, as it is often the deciding factor for consumers when making a purchase.

A long time ago cars were sold by automakers to customers directly. But in 1898, this changed when William E. Metzger founded the first dealership in the United States. Direct sales by an automaker to consumers are now limited by most states in the US through franchise laws that require new cars to be sold only by licensed and bonded, independently owned dealerships. This provokes Tesla and consumers to fight for their rights, in which they have been successful. Today, the direct sales model operates in many US states to sell cars to consumers at the most favorable prices.

A car dealership or vehicle local distribution is a business that sells new or used cars at the retail level, based on a dealership contract with an automaker or its sales subsidiary. It employs automobile salespeople to sell automotive vehicles. It may also provide maintenance services for cars, and employ automotive technicians to stock and sell automobile spare parts and process warranty claims. Tesla has rejected the dealership sales model based on the idea that dealerships do not properly explain the advantages of their cars, and they could not rely on third-party dealerships to handle their sales. In addition, when selling cars through a dealer, they have a high mark-up, and for popular models, it can reach five figures. Instead, Tesla with a direct sales model prefers not to waste consumers' money but to make its electric vehicles more affordable to them.

Ted Marena/Twitter shared his car buying story with Tesmanian and showed what really matters and plays a key role when choosing a car. Ted is a longtime supporter and fan of Tesla vehicles. He was "immediately captivated" by the Tesla Model S as soon as he first saw it nine years ago. However, at the time, Ted had just moved to Silicon Valley, where the standard of living was very high, so he couldn't afford to buy one just yet, and had to focus on supporting his family. At the time, Ted settled on the more affordable Ford Fusion Energi hybrid, which allowed him to be introduced, at least partially, to an electric vehicle.

However, as soon as his financial situation stabilized more recently, Ted began to search for an all-electric car to buy. Since there are some different options out there, he did his research to pick the right one. The Marena family needed an SUV/crossover or bigger type vehicle. Ted was considering a Ford Lightning, but it would probably not be delivered before 2023, and the Volvo XC40, VW ID.4, and Polestar had too low range to meet his requirements. The main vehicles he considered were the Ford Mach E, Tesla Model Y, and Hyundai IONIQ 5. Early on, Ted ruled out Hyundai because of supply shortages and he found their EV safety recall to be alarming.

In addition, during his research, Ted constantly looked at the prices and possible places to buy cars. He said that he was outraged by dealer markups:

"As I began my search it was shocking how much dealers were asking over MSRP. I philosophically decided that I would pay MSRP but not a dime over. There were a couple of dealers who would sell at MSRP but only if I ordered a vehicle which I was told would ship in 9 months or longer. I could not wait that long, so I looked all over the local market. Everyone overpaying for vehicles from a dealer right now are going to kick themselves in a couple years. Dealers has been lukewarm, but I refused to be gouged."

The document that Ted kept and shared with Tesmanian shows that most dealers had a markup of 5-10% on the models he was interested in, which would mean a large overpayment. So, for example, the markup on Mach E is up to $10,000 compared to the manufacturer's suggested retail price.

With the big picture in mind, Ted made a quick decision. He ordered a Tesla Model Y, which more than adequately met all his requirements for a car. One of the decisive factors was that the car was sold at the price set by the manufacturer without any markups and additional fees that dealers have. In addition, the waiting period for the car is about two months, and now Ted is going through the final stage before accepting delivery.

© 2022, Eva Fox | Tesmanian. All rights reserved.


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Article edited by @SmokeyShorts, you can follow him on Twitter

About the Author

Eva Fox

Eva Fox

Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.

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