Stop us if you've heard this one before: Online retailing has mushroomed throughout the consumer world and will soon render a franchised dealer structure antiquated and irrelevant.
In late February, Tesla announced it was shifting to an online-only sales model, which may be one small step for the company, but it could be the first of more seismic shifts for automotive retailing, pushing the industry into online sales before it is ready. Or Tesla's move may be a flailing swing from a niche car company, one in the throes of a cost-cutting strategy, and a move that sends few ripples throughout the broader industry.
Right now, it's hard to tell which is the case. The details of Tesla's burgeoning online operation, which will provide insight as to whether the online-only sales violate franchise and licensing laws that often require physical locations, are unknown. Tests of those state-by-state laws will certainly determine whether other upstarts, such as Rivian and Byton, can utilize similar methods. Legal challenges could take years to unfold.
Before he backpedaled on March 10, Tesla CEO Elon Musk was brimming with confidence.
"Going to online-only is incredibly helpful to us for selling anywhere in the U.S.," Musk said in a conference call with reporters in February. "In many parts of the U.S., we can't sell because of franchise laws, whereas if sales are concluded now online, anyone in the U.S. can buy the car immediately. I think this really, substantially, opens up our ability to sell the cars. It's 2019. People just want to buy things online."
Simon Bradley, global practice director at consulting firm Urban Science, says online-only sales are ill-suited for most dealers but could be done successfully by the likes of Tesla.
"One thing Tesla has going for it that no other OEM has is fixed pricing," he said. "The retail price of the vehicle is the same no matter what point you buy it from in the Tesla network, and when you reach that point, you can entertain online sales in the manner Tesla is doing. For other OEMs, they'd need to at least get to a point where consumers feel like they're getting value from the brand. But the online model works for Tesla because of fixed pricing and their product. They're still the Apple of the car world."