Musk makes auto industry rethink basic assumptions
Tesla Motors CEO Elon Musk, working from a tiny base, is exerting an inordinate influence over the auto industry.
His cars have recast the image of electric powertrains in the public's eye. His small-volume but successful sales in the premium segment are reshaping the conversation about the customer experience for those pampered buyers. After all, so far Musk has taken more buyers from Ferrari than Ford.
But he is creating the biggest waves in the area of factory-dealer relations. In state after state, Tesla's attempt to sell cars directly from its factory-owned stores has led to a debate over the merits of the dealer franchise system and the laws that protect dealers from overreaching automakers.
Results have been mixed. Some states have decisively endorsed the dealer franchise model that has served consumers and the auto industry well for more than a century. Elsewhere, dealers have chosen to concede the battle rather than fight the war, agreeing to compromises that grant Tesla limited stores while leaving the broader franchise system framework in place. In some cases, the debate over Tesla sales coincided with strengthened laws defending dealers from unreasonable factory demands on issues such as facilities renovations. The debate rages on. Now other automakers are muttering that they should get the same concessions Tesla gets.
Part of Musk's influence is tied to his public image as a daring, innovative, free-market entrepreneur. Image isn't necessarily reality. What few profits Tesla has posted so far have largely come not from selling cars to consumers but from selling emissions credits from its EVs to traditional automakers in need of those credits. So without government regulations that aid and support the startup phase of its business model, Tesla might not exist.
That said, Musk's ability to force the industry to reconsider some of its fundamental assumptions is to be applauded. Innovation rarely comes from a status quo mindset.
If Tesla forces the industry to review, reaffirm and strengthen all that works in the dealer franchise system while improving aspects that could be better, that will serve consumers and the industry well.