Tesla’s online car sales could force change in industry
In 2019, many auto experts said Tesla was making a big mistake by deciding to sell cars only online, arguing that whatever bad feelings people had about dealerships, they were essential to the car business.
But the strategy, which was adopted by Tesla CEO Elon Musk and combines direct sales with a limited number of stores and service centers, appears to be proving the naysayers wrong. The company dominates the fast-growing electric car market even as other manufacturers struggle to sell cars because of a shortage of computer chips.
Tesla’s approach, which has been copied by other young electric automakers such as Rivian and Lucid Motors, could eventually have major ramifications for the auto industry. Most automakers and dealers are earning rich profits right now because the shortage of new cars has pushed up prices for new and used cars. Still, car companies and dealers may have to eventually adopt some of the changes Tesla has introduced to win over buyers who have grown used to buying cars online.
People who have traded in conventional cars for electric vehicles made by Tesla and newer companies said they were pleased with the experience and would consider buying future cars in the same way.
“Easiest big purchase of my life, crazy easy,” Rachel Ryan, who lives near Los Angeles, said about her 2021 purchase of a Tesla Model Y. “I bought it while my husband was at work,” she added. “When he came home, I told him he wouldn’t be driving my minivan anymore.”
Ryan said the only service problem she had was a flat tire from a nail. “Tesla came to my house to fix it,” she said. “Any questions I have, I just email, and they are on it within minutes.”
Buying online is a must for people looking to purchase an electric car made by Tesla, Rivian or Lucid, whose customers can buy only online and directly from the manufacturer. But online car shopping appeals to a large proportion of all car buyers, even those buying combustion-engine cars through dealerships, said Michelle Krebs, an executive analyst for Cox Automotive.
“Our data shows consumers want to do more of the process online but most don’t want to eliminate the dealer visit altogether,” Krebs said. “They just wanted the dealer experience to be something else — focused on the product, the features of the product and a test drive.”
She said some dealerships had started digitizing some or all of the buying process in the early days of the coronavirus pandemic, when showrooms shut down like other retail businesses. In Europe, some automakers have gone even further. Daimler, Volkswagen and Volvo are selling cars directly to consumers or have announced plans to do so.
U.S. automakers have also signaled that they would like to make big changes. Ford CEO Jim Farley said at an investor conference this month that the company’s distribution and advertising costs per car were about $2,000 higher than Tesla’s. Farley said Ford wanted to sell electric cars only online at nonnegotiable prices without keeping a large inventory of cars at dealerships.
He added that dealerships would remain important but would have to become more “specialized.” He likened what is happening in the auto industry to the retail business, where the rise of Amazon forced established retailers to sell more on the internet and use physical stores in new ways.
Established automakers are unlikely to do away with dealerships for another reason: State laws often require them to sell cars through franchised dealers and can make it hard or impossible for automakers to deal directly with customers.
Tesla has lobbied state lawmakers to change laws governing auto sales and has gotten lawmakers in many places to allow the company and other automakers that never had dealerships to sell cars directly to customers.
But in some states such as Texas, where Tesla is now based and has a factory, the company has struggled to persuade lawmakers to change laws and rules that favor dealerships. For example, Texas offers a $2,500 rebate to people who buy electric vehicles, but buyers of Teslas are not eligible because those cars are not sold by franchised dealerships.