Tesla will have no choice but to franchise

Tesla will have no choice but to franchise

Tesla is going to have to tie their big boy shoes soon or they will have to sell to franchise dealerships. Their service network was fine for low volume, but it’s evident from posting of the numerous service failures that their current service network can’t handle the volume of new cars.

First it is production delays, Next it will be service failures. I hate to be a pestimist but I’m concerned about running into quality issues with my model 3 once i get it. I live in Michigan and the closes service center is 3 hours away.

Magic 8 Ball | 26 juillet 2018

over 60,000 M3's out there and how many service "failures"?

Why is franchising needed instead of just expansion of their current model?

FifthOnLeft | 26 juillet 2018

Maybe you should exercise your right and vote those corrupt politicians out of office and vote to change the stupid franchise laws.

TranzNDance | 26 juillet 2018

The problem you have in Michigan is because of dealer laws. Dealers don't have the financial incentive to sell EVs and are making it hard for Tesla to open more service centers.

There are several Tesla stores within a half hour drive from me.

cascadiadesign | 26 juillet 2018

For quality reasons (especially in-warranty repairs) I'm sure they don't want third party partners. And service is a profit center. I expect Tesla to keep it in-house and expand to fill the need. As you know, production ramped up quickly this year and service turn-around times are affected. Elon has acknowledged that. Service expansion will happen, but it will take some time. My Model 3 has no issues since taking delivery. But if it needs service I'm confident, based on feedback from owners, that I'll be taken care of.

Mzab | 26 juillet 2018

I’m not sure of the total amount of model 3 on the road today, but some of posts on this forum, whether they are completely factual has me nervous about quality upon delivery, and Tesla’s ability to fix the problem in a timely manor. I bought many cars in my life and I’ve never heard of cars being delivered with broken glass, scratches, or delivery centers not knowing where a car is or missing Delivery dates.

As far as franchising, if Tesla is wanting to mass market their product, they are missing out in selling to major markets, i.e. Texas, Michigan, etc that’s needed for their survival. I realize and agree with Tesla and its direct selling to consumers, and i strongly oppose government imposing franchising laws, but as Elon said, “it’s the last time to bet the company”, if Tesla needs volume to survive, I would seriously look into working within the law of franchise only states to fully tap those markets. They may miss out in gaining market share while battling those states.

BTW. I’m still a fan and extremely excited about my future model 3!

Magic 8 Ball | 26 juillet 2018

Do not become a victim to FUD!

There are over 60,000 M3's in the wild now with happy owners. The complaints, and they are mostly unvalidated, or if real are usually exaggerated represent a small number compared to the masses of satisfied customers.

mystiq | 26 juillet 2018


What does a dealership system provide Tesla that they could not do themselves?

Consider that a dealership for, say, Ford is just an extension of Ford's business. A dealership near me may have 5 sales people, one receptionist, a few managers and a couple of repair people. Why could Tesla simply not open up a building, stuff the same people inside it, and call it a "Tesla Service Center"?

And then you have the reputation of dealerships that people often associate with them. I haven't been to a dealership since I bought my current car, about 5 years ago. I went to a dealership recently because they were buying used cars and so dropped by for a quote. Then we sat down a bit as my travel partner was interested in buying a car from them a little down the line. Suffice to say I was reminded why I hate dealerships.

Is it possible to run a dealership that has no "sales" people and is just more like stopping by a toy store? Sure. But food markets don't have people running up and down every aisle trying to sell you the latest pineapple. Ultimately, dealerships exist because it's mandated by state governments, not because it's the best way to do. (Whether it is or isn't is irrelevant, they exist because of state mandates.)

efuseakay | 26 juillet 2018

Tesla won't franchise. But they have to immediately work on expanding their service center network before the SR3 comes out next year or they will be past the point of no return. With the expected and hopeful jump in customer base when the SR3 is released, they are going to have to get a handle on things right now. I hope they can.

carlk | 26 juillet 2018

What service failure? Tesla service is the best I've seen and I have owned quite a few high end cars too.

carlk | 26 juillet 2018

BTW not only Tesla will not franchise but it is planning to set up in house body shop too. Tesla will take full responsibility for everything happened. That is the way to go.

dgstan | 26 juillet 2018

Is there a huge backlog of people waiting to have their car serviced? I hear stories of problems upon delivery, but those - for the most part - seem to get addressed quickly. Tesla is scaling up their infrastructure and they appear to be doing a pretty good job so far.

swamins | 26 juillet 2018

They definitely need to expand deliveries to all their stores. The Hub model is just not scaling.

Ngm98 | 26 juillet 2018

Tesla is actually providing mobile servicing where one does not have to drive into the service center to have it serviced, they come to you. I recently had to contact them about the driver side daylight signature light being unbalanced and the door seal being off. They promptly made an appt, came and fix the issue. They actually made a point of replacing the passenger side also because the lights did not look even (on a separate day). So I’m very happy with mobile service, I didn’t even have to worry about dropping/picking car up.

chuck | 26 juillet 2018

Every new car I have ever bought including Mercedes has gone back within the first month or so for a "punch list."

My Tesla punch list included intermittent warnings about breaks. When I called for my appointment and mentioned this they said it was PROBABLY the firmware problem, but they wanted to see the car ASAP to inspect it just in case it wasn't. They found the breaks just fine.

wade.wilson | 26 juillet 2018

@dgstan - The issue I heard is parts can take awhile. I talked to a Model 3 owner who got sideswiped by a SUV. He’s been waiting few weeks for the fender replacement. He was told that the worst part is the rear bumper.

lilbean | 26 juillet 2018


Revelate | 27 juillet 2018

It's really no different than any optimization problem in the computer space: you alleviate one bottleneck, another part of the system then becomes the limiting factor.

Iterative iteration, the fact is model 3's are getting delivered, and the majority response is overwhelmingly positive.

Yup there are issues, but the reality is the vast majority of owners aren't on this forum, and admittedly the truth is somewhere between the deniers and the FUD spreaders... and calling it what it is, statistically people who will want to post about an issue is easily an order of magnitude larger than people who will post that everything is wrong, so when you see about even posts here, it's pretty clear what the opinion is out in the wild.

Going the franchise route would be a complete mistake in my estimation.

Revelate | 27 juillet 2018

bleh, post that everything is *right

Wish we had an edit feature on this forum heh.

ravisundaramam | 27 juillet 2018

The bear theory on Tesla direct selling: Car dealerships are low margin business in new car sales. The car maker takes just a 6% hit, true, but the dealerships make money in service. Telsa putting its scarce capital in such a low margin new car sales is poor allocation of capital. Short it!

Why the bears are wrong: (1) Different sales model. (2) warranty service revenue source.

(1) Sales model difference: Tesla is using a no negotiation, fixed price, order on the net sales model. Not the expensive, show room, commissioned sales people, guess popular options and have cars on the lot ready for sale model of the legacy car makers. It does not have to take that 6% hit in the *gross* margin.

(2) Follow the money: All the new cars come with bumper to bumper warranty and long power train warranties. Now a days they throw in state inspections, emissions testing and oil changes for free. All those services are done at the dealership paid for by the car maker. A huge chunk of the "highly profitable service center revenue" actually comes from the car maker itself.

Conclusion: What Tesla does is not a poor allocation of capital. It is actually prescient bordering on the genius.

wiboater4 | 27 juillet 2018

When you say it comes from the car maker it should probably be considered added to the price of the car.
I've bought 4 new vehicles in my lifetime and almost never go back to the dealer for service. So the argument that Tesla needs Dealerships for service is not true for me. Also Tesla's require less service. Remember all the model S and X cars out there already too. Tesla's plan right now is the way to go. States need to let Tesla open their showrooms and service centers and quit catering to there political donors.

dd.micsol | 27 juillet 2018

just another short supporter of chanos and johnson.

ravisundaramam | 27 juillet 2018

Stock brokers used to charge 149$ per trade commission.

Music used to be sold on 20$ CDs with one good song and 19 fluff pieces added together.

Bookstores used to sell books with 20% net margin.

Cars used to be sold through dealerships socking the car makers with 6% sales cost.

Tesla will succeed. It will force Texas to change the laws. It will announce it is looking for a site for its next giga factories. But it will consider only the states that allow Tesla to sell direct.

SO | 27 juillet 2018

No to franchises and no to dealers. Tesla is doing it right but it will take some more time. If you don’t like it, don’t buy a Tesla.

carlk | 27 juillet 2018

*** Is there a huge backlog of people waiting to have their car serviced?***

For a little while couple years ago you do need to wait for weeks for a non-emergency appointment. Emergency issues will always be taken care of right away without needing an appointment. That has been improved greatly since. Now you can usually get an appointment within two or three days in my area. I actually just made an appointment for an annual service it's still the same. The op is either a troll or just to spread FUD.

David N | 27 juillet 2018

Elon said years ago in interviews that he is not saying “ never “ to the dealership style, just that at the time (initial years) it is not the right thing to do if Tesla is to succeed. That answer was in response to the “why don’t you have dealership” question back in the 2012/2013 era.
Elon will do what’s best for Tesla and it’s customers.
Sit back, relax and watch history in the making.

carlk | 27 juillet 2018

@David N If dealership model is better why dealer associations fought tooth and nail to stop Tesla and not just let it to fail or to change on its own?

mos6507 | 27 juillet 2018

[just another short supporter of chanos and johnson.]

Yet another knee-jerk paranoid accusation.

Kathy Applebaum | 27 juillet 2018

@mzab I'll add my voice to others telling you that your problems in Michigan are *because* of other dealers, not the lack of Tesla dealers. Here in California, as long as parts are available, I usually get same or next day service on my Tesla. And they come to me most of the time. That does NOT happen with dealers of the other car makes I've owned -- usually takes a week to get an available appointment, takes forever to drop the car off (forget them coming to me) and good luck getting a loaner.

Instead of upping their game, the dealers think the way to go is to block Tesla. Good luck with that -- that's worked out so well in other industries. (eyeroll)

vmulla | 27 juillet 2018 someone wants a piece of the pie without actually putting in the effort? Fat chance!!! (My first choice of words were a much more colorful)

The premise of the argument is that service delays will force Tesla's hand towards franchising? Well what if the body shops were falling all over themselves to get Tesla certified? Folks have to realize much of Tesla repair is diagnose and replace, there is no real repair. All Tesla certified shops have the same diagnostic tool kits as the service center. So why should Tesla franchise now?

qi | 27 juillet 2018

Restricting access to spares, manuals, tools, and forbidding 2nd sourcing is a good way to improve profits.

Tesla's mail order model is an excellent idea, since there is not actual promised dates and non-refundable money is required. Locking out 2nd sourcing for used sales is an excellent idea too, just void the warranty, disable supercharging, and stop OTA updates if the title is ever handled by a state-licensed automotive reseller or repair facility.

Another good idea would be after the warranty is up, transmit a poison pill to each car. It will need to be fixed for $1500. Make the steering wobble, play with the frequency drive or audio system to make a howling sound. Make OTA services $50/m after warranty is over.

There are lots of ways to make money selling cars. I estimate they could increase income 10% per car starting in year 4 + 1 day / 50,051 miles. This can all be done OTA or web-based. Wrong tire brand? Suspension warranty void. There is nothing to stop them but the courts. Who apparently did not lift a finger in 8 years.

Far fetched? How about derating the P85D from it's advertised 762HP. Press testing came up with slower ETs.
Limit cars to 25 full power acceleration events?
Limit service manuals and dealer tools?
Make folk buy a rotor, caliper, and pads to fix just a worn pad.
Send undesirable OTA code?
Get a second opinion on a repair?

The perfect automotive ownership experience lies in the middle of consumer protection and laissez faire capitalism.

RedPillSucks | 27 juillet 2018

I think what people are missing and perhaps what OP is alluding to is that, despite what we might want/like, the dealership laws in pretty much EVERY state is stacked against Tesla. So even if Tesla were to attempt to expand their current model, they may not be able to do it enough to scale the service stores to match the scale in production/sales.
Is it's not necessarily that dealerships are a better model, simply that it will be the only model the majority of states will tolerate. That's just the environment we live in. Elon doesn't have enough money to bribe 50 governors.

qi | 27 juillet 2018

There is a business axiom. 90% of your income comes from 10% of your clients.

You don't need 100% coverage to run cellphone company or sell cars. You just need the 90%.

The 10% of lost income comes at a far higher price per unit than the 90% of current sales.

carlk | 27 juillet 2018

You need to look at the long term. Dealers are powerful only because they are selling more cars and have more money than Tesla. That will gradually change until balance of power shifts to Tesla's side in not too distant future. Not to mention even at this moment California, which is probably accounts for half of Tesla's US market, and few other important states have zero restrictions for Tesla to sell and service cars directly. When Tesla dangles that plan for new gigafactory or pickup plant in front of them you can bet Texas or other states will race to change laws to get on Tesla's good side.

Most people here probably never had an experience with Tesla other than hearing a few FUD here are there but we all have had experiences with dealers in the past. I can tell you I have no desire of going back to dealers either to purchase a car or to get my car serviced after my Tesla experience. I'm in California of course but for people in some of those states that are not friendly to Tesla your best hope is to lobby your representative to change the law in your state.

james | 27 juillet 2018

Tesla will never "franchise". but they will take steps to help the EV market expand. Tesla's auto division is fantastic but the battery division will be even better. Dealership laws will weaken as EV absorption rises.

calvin940 | 27 juillet 2018

Last thing I want is Tesla to replicate a crap industry.

wade.wilson | 27 juillet 2018

Q: do dealers make lots of money?
Q: if so, why would Tesla give up that money?

garibaldi | 27 juillet 2018

They're growing pains, for sure.

But I think Tesla also is having a problem right now that dealerships don't have it. Usually, you go to a dealership, the car is already there, and they had time to prep it. Very few cars are designed to order and requiring prep on a rush.

And it’s only going to get worse. Seriously, it’s going to be hard for me to decline delivery if it’s December, otherwise I may lose the tax advantage.

Commission also helps, so perhaps Tesla should pay something for those delivering cars that are in perfect condition.

Anyway, as for me, as long as they fix the problems, I’ll be happy. Maybe in 5-10 years they’re going to streamline it, but I’ll take what I can get now.

Mathew98 | 27 juillet 2018

@qi - I don't know what you have been smoking.

I'm in my fifth year and not a single item needed attention since the fourth year anniversary. It still looks need (thanks to Opticoat) and runs like new. Perhaps it was a waste of money buying extended warranty...

But who's interested in listening to an old timer, huh?

carlk | 27 juillet 2018

@garibaldi Don't you think dealers often are too eager to put cars into your hands and will do anything to make that to happen? I'd rather to deal with a Tesla sales clerk who does know much than a dealer salesman who knows everything (of how to separate your money from you).

carlk | 27 juillet 2018

The same goes for services. How do you know services the dealer so eagerly provide you is for your good not their own good? After all that's where they generate most of their incomes from. No matter what is your experience with Tesla service one thing that you can be certain is when they recommend a service it is to help you not them.

PhillyGal | 27 juillet 2018

I think the manufacturing of extra parts is more of a current challenge (Tesla will no doubt address this within a few years) but that wouldn't be solved by franchise dealers anyway so.... NOPE!

dmm1240 | 27 juillet 2018

Blame your state legislature for the lack of a service center near you. It's their fault (from Forbes 8/11/17: "In Michigan, the electric carmaker is seeking an injunction in federal court against a 2014 law that prevents it from selling its electric vehicles without a dealership network."

This is a classic example of the pig in the python.

First, the problem was production. This has now been solved. Tesla is ordering parts at a rate supporting 6,000 Model 3s produced weekly. Bloomberg's M3 tracker supports this showing production shooting up above 6,000 within two weeks.
Currently, the pig is choking Tesla's delivery infrastructure. They're slammed as the factory turns out more cars.
Next comes service as new owners bring their Model 3s in to take care of the inevitable warranty issues.

Tesla is currently hiring ~1,000 new delivery specialists to handle the increased load. Musk announced a couple of weeks back that the company is ramping up service capabilities, has installed a new supply system for parts, etc. That said, there are still going to be problems caused by volume in the short term.

When you have a company that is in the process of quintupling annual output in a very short time frame there are going to be problems. Increased demand must be balanced against available resources. The trick is to ramp up service capability so that you don't have a bunch of people standing around with nothing to do for months prior to the number of service tickets exploding.

IOW, no they don't have to franchise out sacrificing ~50% of potential profits per vehicle by doing so. They do need to get the timing right, IMO.

gcklo | 27 juillet 2018

It will be sad and disappointing if the dealers win the battle requiring car makers to always go through them. I am rooting for Tesla to break the power of the dealers.

garibaldi | 27 juillet 2018

@carlk Despite how it looked, I was actually not complaining. What I meant is that any automaker would have these problems if they had as much success as Tesla in their early days.

In other words, if any dealership would have to prep + deliver as fast as Tesla is doing now, they'd have the same problems. Once Tesla stabilizes their production and have cars ready to sell out of the lot, those problems will go away.

So, not a complaint. I'm just saying that's going to be a lot of pain through the end of the year (part of it caused by the tax break), and I'm fine with that. It is what it is.

I just want my Tesla! :)

carlk | 27 juillet 2018

@garibaldi I didn't think you're complaining. I agree there is some growing pain too although I had to say the store model is much better than the dealership model. Not just for Tesla but also for consumers. Another thing I did not mention is customers will end up paying the middleman whether it's stated that way or not.

Some people, mostly people in places where Tesla direct sale is not allowed, are barking at the wrong tree. If it's the bad law then we need to put effort to change the law instead of for everyone to follow the lowest denominator and to suffer the consequences together.

Rutrow 3 | 27 juillet 2018

Any legal minds out there care to explore whether Tesla has a case to sue the states that are interfering in interstate commerce? It seems to my zero-days-in-law-school brain that Granholm v. Heald put the kibosh on these types of laws. The Supreme Court case held that state liquor laws couldn't interfere with vineyards shipping their wines directly to customers.

Oyez! what you say?

David N | 27 juillet 2018

Why does everyone think a future “Tesla Dealership” would look anything like our current ICE dealership. Who says Tesla has to belong to the current dealer network?
Keep your shorts on, I’m anxious to see what Elon has in mind.
Go Tesla!

Haggy | 30 juillet 2018

"Every new car I have ever bought including Mercedes has gone back within the first month or so for a "punch list.""

Since I have an early VIN (5xx) I expected to have more problems than on later vehicles. I went in for an airbag warning, and they replaced the cover. The airbag itself was fine and the warning wouldn't have affected me, but it was a legitimate problem.

Everything else got fixed by software. There were a few non-problems fixed, because Tesla is known for swapping some things out on early cars when they come up with an improvement. So they changed things when I brought the car in, and sent somebody to my home to change something, none of which were showing problems.

When I got my Model S in 2014, a non-critical repair had about a six week wait. My initial problem was with a switch on the steering wheel that was sticking. Over time, the production rate has gone up more than tenfold, and the wait for repairs has gone way down. I've never had a problem with either car that kept me from using the car, so you could say that all issues were more nuisance things than anything else, so all things considered I was never taken aback by the wait. But I did see it drop down from six weeks to a couple of days for something non-critical.

The only critical repair on the S (from their perspective) was cracked roof glass, since they didn't want to risk it shattering, so they had me bring it in the same day. With the Model 3, the airbag was also something they had me come in the same day for, because if it had been a real problem, I was better off in a loaner.

I really don't want to deal with a dealership model. It's much better when Tesla has full control.