Tesla Could Shake Things Up: FTC Officials Back Direct-To-Consumer Sales Model

Lumped on top of the many engineering challenges that Tesla has had to solve while bringing all-electric vehicles to market is a problem with its sales model. Tesla wants to sell its cars directly to consumers, which seems like a sensible, simple thing to do, but there are laws and regulations all over the country that prevent just that, and some states including New Jersey, Virginia, and Maryland have specifically prohibited Tesla sales.

Fortunately for Tesla, three FTC officials co-wrote a blog post backing the electric carmaker’s business model and explaining why it should be allowed to stand.

Tesla Model S
Tesla Model S

“When the automobile industry was in its infancy, auto manufacturers recruited independent, locally owned dealers to reach consumers in localities across the country,” they stated. “State laws progressively embraced wide-ranging protections for these dealers due to a perceived imbalance of power between the typically small local dealers and major national manufacturers.”

At some point, however, “Instead of ‘protecting,’ these state laws became ‘protectionist,’ perpetuating one way of selling cars—the independent car dealer,” they added.

The group notes that these laws don’t really apply to the Tesla situation because they don’t apply to a direct sales model; the regulations are designed to protect local dealers from abuse by manufacturers. They want a competitive marketplace to sort out what consumers want and not decades-old laws that don’t necessarily fit the times we live in.

Tesla Supercharger

This is a classic clash of paradigms. Tesla is really both a tech company and a car company, and right now as it’s creating these vehicles and building out an infrastructure to support them, it’s functioning more like a tech company. The Model S is even somewhat of a beta product. (That’s not to say that it’s unfinished, just that Tesla appears to still be working hard to improve the vehicle’s design and solicit input from its customers.)

As a tech company, it makes sense to sell its beta wares directly to customers. However, there’s a long-established way of selling cars in this country, and this direct-to-consumer model grinds up against it. Thus, Tesla as a car company is problematic.

Car dealers may be justifiably frustrated at Tesla’s model because they have no way to counter it, but at least at this point in time, it doesn’t make any sense to ban Tesla sales. When and if Tesla grows larger and ends up with dealerships dotting the country, that’s perhaps something to revisit.

Or maybe the FTC should re-examine the way all cars are sold in the U.S.