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June 27TH, by Jason Tiemeier, No Comments

Tesla Model S

Tesla Model S

We know that Texas’ economy is heavily reliant on gas. Both as a major consumer and as a major importer and refiner. Due to its association with pollution and global warming, the public has been pushing to have alternatives offered to them. In comes Elon Musk and its new electric car, the Tesla Model S. Although the company has received some fantastic news as a result of its great success, hurdles still lie on its path as the Business Insider explains:

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.”

There is no questions that there are several well-established industries and lobby group that see Tesla and what it represents as a major threat, and as such would hinder any opportunity for growth of the company. Time will tell if the public demand is large enough to overcome any of these obstacles, and whether the Model S and any of its successors will become mainstream.

Written by: Heritage Office Suites

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