Dealers thrived in 2021: Are state franchise laws hindering EV adoption?

Another year has gone by without a resolution to the fight between franchised dealerships—which had a strong 2021 thanks to weak supply and strong demand—and the direct-sales model pioneered by Tesla, and now taken up by Rivian and Lucid.

This is a familiar saga to anyone who has followed EV developments over the past decade, but the longer it continues, the more it will hinder EV sales, argues a recent Bloomberg opinion piece.

Most states have franchise laws that require automakers to rely on independent dealerships. This went largely unchallenged until Tesla began selling cars, choosing to do so through its own stores and website.

That led to pushback from dealership groups and sympathetic legislators. In 2014, Michigan changed its statute to close loopholes that would have allowed Tesla to sell cars in the state that is home to the Detroit Three automakers. Tesla and the state government compromised on a workaround in 2020 allowing the automaker to service its cars, but still not actually sell them. Even that was challenged in proposed legislation that passed Michigan’s House, but wasn’t taken up by the Senate.

When it launched its direct-sales scheme, Tesla argued that it was necessary to give EVs a fair shot in the market. This opinion piece echoes that thinking, arguing that the primary mission of franchised dealerships is to quickly move cars off the lot, then generate additional profit by servicing them.

EVs, however, require a greater degree of customer education regarding things like range, charging, and one-pedal driving, the author noted. That requires the salesperson to spend more time on an EV sale. Lower maintenance needs also limit the potential revenue from servicing.

Lucid Studio – Newark, CA

These conflicting priorities may already be having an impact on EV sales. While noting that correlation isn’t causation, the piece notes that Florida has much higher EV sales than New York, despite having no state subsidies. New York, however, caps direct sales, while Florida doesn’t.

Dealerships’ push to profit from each transaction could also sour customers on enthusiasm for new EVs. Many of the most anticipated new models (electric and otherwise) were given massive markups in 2021 as dealerships sought to capitalize on limited supplies. Ford has told dealerships that it won’t send them F-150 Lightning pickups if they employ strong-arm tactics.

While established automakers like Ford are essentially stuck with their franchised dealerships, startups are leaning toward direct sales. Lucid is following closely on the Tesla model, but with a more boutique approach, while Rivian has also eschewed franchised dealerships for sales.

Polestar Space

Both Rivian and Lucid have been careful from the start to avoid saying that their stores or galleries sell vehicles. They’re sold via the website.

These direct-sales automakers are having no problem getting cars out to customers, even in Michigan and other such states. Tesla delivered more than 300,000 vehicles globally in the fourth quarter of 2021 alone, with several estimates on an exact number not yet in agreement.

Meanwhile Polestar’s approach stands as a hybrid—and it may be something closer to how vehicles are increasingly sold in the future. The Volvo spinoff brand has its own dedicated Polestar Spaces and online sales, but servicing is largely handled by traditional Volvo dealerships.