“To the People of New Jersey”: from Elon Musk

Elon Musk, CEO of Tesla, wrote a blog post last Friday giving details of the circumstances of the revocation of Tesla’s licences to sell cars in the Garden State.  The post was apparently also sent to every New Jerseyan on the Tesla mailing list.  It follows a post three days earlier by Mr. Musk, “Defending Innovation and Consumer Choice in New Jersey,” in which he alerts readers to an about-face by the Christie administration.  After months of negotiations, during which Tesla believed the question of its licences would be put to legislative vote, Musk says the governor decided to have the Motor Vehicle Commission declare that cars in New Jersey can only be sold through third-party dealer networks.  The rationale?  …”consumer protection.”

Musk is considerably less than amused by this development.  At one point in his long post on the 14th, he manages to allude to mafia influence and to the traffic obstruction scandal Mr. Christie is embroiled in, both in the course of a sentence or two.

Musk also derides the notion that anyone would consider car dealerships to be paragons of consumer protection.  He points out as well that the MVC is “protecting” citizens against the vehicle that has achieved the highest ratings Consumer Reports has ever given to any car.  He also cites business publication polls in California, North Carolina and Texas in which overwhelming majorities favor the direct car sales over sales through dealerships.

More substantively for investors, Musk also outlines the difficulties Tesla would face in trying to sell through third-party dealer networks.  This model calls for dealers to sell large numbers of cars, and to make the bulk of their profits through (expensive) aftermarket services.  Tesla’s electric cars don’t require much servicing, however.  At least some of that can be done through software updates over the internet.  In addition, the fact that Tesla will likely sell only 35,000 cars worldwide this year (that would be 0.25% of the US car market if they were all sold here) means Tesla can’t be a significant part of any dealer’s business.  So the dealer might use the Tesla name to get customers onto his lot, but he’s likely to try to steer the client toward more profitable brands.

It’s also striking that, as Musk points out, every independent electric car maker who has tried to sell through existing third-party auto dealers has failed.  Musk says the last successful independent in the US was Chrysler a century ago,

On to Ohio, where the next Tesla vs. dealers battle is being fought.

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