Over the past few months, we’ve provided extensive coverage of the ongoing battle between state legislators across the U.S. and Californian electric car automaker Tesla Motors [NASDAQ:TSLA]. More specifically, Tesla’s battle to retain its right to sell its electric cars direct to consumers instead of through the traditional franchised dealer model used by the rest of the automotive industry.
For the most part, Tesla has had to do battle with powerful auto dealer associations with enough political and financial sway to convince elected officials that Tesla’s business model will destroy the livelihoods of auto dealers across the U.S. While some legislators are prepared to help Tesla defend its right to sell direct to consumers, every auto dealer we’ve encountered has been firmly anti-Tesla.
Yet Mike Jackson, CEO of AutoNation, Inc., [NYSE:AN] the largest dealership group in the U.S., says Tesla should be allowed to sell its electric cars to customers the way it wants to. Not doing so, he says, could have big consequences.
Talking with AutomotiveNews (subscription required), Jackson warned that some of the attempts to stop Tesla from selling direct to customers in states like New Jersey, Arizona and Texas could only end up hurting — not helping — existing auto dealers.
He cites Tesla’s Gigafactory as an example.
Currently, Tesla is looking for a partner state where it can build its Gigafactory — a $5 billion, 1,000 acre lithium-ion battery facility expected to employ around 6,500 people. Producing and recycling more lithium-ion battery cells than the current cell output of Asia combined, the Gigafactory promises to change the economic prospects of the state it will be located in forever.
Since the Gigafactory will run entirely on renewable energy, Tesla is looking at sites in Nevada, Arizona, Texas and New Mexico, but Tesla is currently banned from selling direct to customers in Texas and Arizona. As you’d expect, both states are now warming to Tesla selling direct to customers, because the lure of 6,500 new jobs is far greater than that of auto dealer associations.
“You want to talk about unintended consequences,” Jackson said. “You pick a fight with Tesla. Now they build a big battery factory. What are you going to do?”
With revenues last year of $17.5 billion, and a net income last year of $740.3 million, AutoNation has 266 dealerships across the U.S. and employs 22,000 people, selling 32 different brands of car. As a consequence, it’s easy to argue that with such wealth — not to mention a highly-prized position on the Fortune 500 — Jackson really doesn’t have anything to fear from a relatively small Californian automaker.
Yet with Tesla on an almost unstoppable surge upwards in both the stock market and the sales charts, we also think Jackson understands how important — and revolutionary — Tesla and its sales model really is. As a successful businessman and head of the largest auto dealer network in the U.S., we’d also wager that Jackson — former CEO of Mercedes Benz North America — understands that flexibility and an ability to change is essential for any business to remain successful.
For AutoNation, Tesla isn’t a competitor: it’s a blueprint for a future sales model that the auto dealer giant may very well be able to share a piece of. The question now is will other auto dealers follow?
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