Elon Musk: Challenging the franchise system

When Elon Musk laid out his blueprint for electric vehicle-maker Tesla Motors in 2004, he proposed many approaches that ran counter to accepted car business practices.

But none of them upset the American industry status quo quite so much as his plan to retail Teslas directly to consumers, without going through a network of independent franchised dealers.

Skeptics have scoffed at Musk's strategy from the get-go, pointing out that -- for better or worse -- various state statutes prohibited factory-direct vehicle sales all over the country. Tesla never would succeed, many predicted, because auto dealers long ago made sure they never would have to compete head to head against automakers.

But a decade later, Tesla is making headway on the retail front, overturning obstacles in state after state to go factory-direct.

"We've had some successes," reports Jim Chen, Tesla's vice president of regulatory affairs and associate general counsel, the man who pleads Tesla's case in courtrooms and state houses and before hostile retailers around the country. "People said it would be impossible. But we're making slow progress."

Musk is pursuing this legal argument: The state prohibitions were intended to protect dealers from competing against their own factory. A Ford dealer did not want Ford Motor Co. offering local consumers better prices than the dealer could. The laws were not intended to protect Ford dealers from General Motors.

Musk's disruptive logic is that Tesla does not have any existing franchised dealers. Therefore, there is no dealer out there whom Tesla Motors would be undercutting or competing against. So the rules do not apply to him.

It is an emotional conversation for many.

"The dealers are never going to stop," Chen sighs. "This is threatening to them. This will go on forever."

But he says Tesla is not locked into this business model forever.

"Dealer-owned franchises and corporate-owned stores can coexist," Chen says.

"You see that in the fast-food business; you see it in the hotel business. It could work in the auto industry someday."