Auto execs still don't think the Tesla sales model will catch on

Some car companies have hinted at experimenting with a direct-to-consumer model and cutting dealers, but many execs have said they’re not actually convinced it’ll happen.

• Most automakers sell cars with a traditional franchise model, while Tesla sells direct-to-consumer.
• Some companies have hinted at the idea of shifting their dealer involvement in future EV sales.
• But many execs said in a recent survey that they’re not sure Tesla’s way will catch on.

Auto executives still don’t think the Tesla sales model will catch on — despite some pretty substantial shifts in the auto retail space already taking place.

More than one-third of executives in the car business don’t believe an agency model (or direct-to-consumer sales like Tesla does) will find its way to US car buying, according to a Kerrigan Advisors study released earlier this week. About 43% were unsure about the new way of doing things materializing, and only 22% were optimistic it could happen. The dealer consultancy surveyed more than 115 car company executives between December 2022 and May 2023

Tesla has always operated with a direct-to-consumer model, eliminating the need for a middleman — in this business, dealers — and allowing customers to buy vehicles directly from its site with no room for haggling on the price. Buyers can pick up their Teslas at a Tesla showroom (notably not a formal dealership), but transactions aren’t typically done there. Other EV startups have followed suit.

Meanwhile, traditional automakers have primarily leaned on dealers to work with car buyers, serve as a negotiator over price and terms, and be a stable source for vehicle service. This also helps companies mark a car as “delivered” and collect payment as soon as it hits a dealer lot but potentially before it’s in a customer’s hands.

Some car companies have hinted at experimenting more with an agency model, limiting the role of dealers and giving consumers what they say is a more straightforward buying experience, especially with more uptake of electric vehicles.

BMW’s CFO, for example, told Reuters last fall the company wants to give customers a direct ordering option.

During the company’s late-July earnings call, Ford CEO Jim Farley said Ford’s EV business (coined Model e) has already moved to “a differentiated model that will deliver non-negotiated price, a simple shopping and ownership experience and remote services.”

Automaker demands put some dealers on the chopping block

But it’s been a huge debate in the industry as auto dealers are a strong lobbying force, so much so that Florida Gov. Ron DeSantis banned direct-to-consumer car sales in the state, with the exception of Tesla and EV startups that never had franchised dealers. As is, EV startups have had to battle franchise laws in each state in which they want to set up shop.

As automakers spend billions of dollars to electrify in the coming years — and lose billions while adoption is still ramping up — they’re asking dealers to make substantial investments in their stores. Kerrigan experts have suggested this might be one way auto manufacturers are attempting to push out their dealerships amid the EV transition.

Yet, these auto companies also want their dealers around in some capacity to service all the EVs they’re hoping to get on the roads in the coming years.

Auto retail has no choice but to change, but the question remains: To what extent

That’s all to say that car-buying just isn’t what it used to be, and the modern car-shopping experience has shifted quite a bit. It’s also clear that EVs are changing the auto dealership as we know it, and Tesla is, in fact, influencing the industry to transform.

But auto retail tech firm CDK Global found that while 46% of dealers felt unprepared to handle a shift to direct-to-consumer this year (up from 19% feeling unprepared in 2022), only 10% are actually concerned automakers will attempt to make the switch (fewer than the 12% that were concerned last year).

Many customers are interested in the “Teslafied” way of doing things, but others will always need a brick-and-mortar store.

“There are ways to get consumers the feeling of more buying online and the direct-to-consumer type of experience” without full commitment to the agency model, Jessica Caldwell, executive director of insights at Edmunds, said. But, “It does feel like the balance hasn’t quite been found yet.”

Meanwhile, the percent of car-buyers who order their vehicles entirely online still remains very low, according to CDK.

“Because of the supply problems that have happened for three or so years, people got really used to ordering from a factory and ordering in-transit — but they did it at the dealership,” Dave Thomas, CDK director of content marketing, told Insider.

EVs were “going to be the catalyst to jumpstart an agency-type environment,” he added, but the need for in-person EV education has kept buyers coming back in-person, at least for now.

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