Tesla Gives Michigan Lawmakers The Finger And Opens First Non Store In Detroit

Last time I checked nobody has a direct competitive product to the Model S or the Model X. Or even the Model 3. And if you are really shopping for a car at this level, you likely at not buying American anyway. Let Tesla do what it wants until it succeeds, is sold or runs out of money.

Tesla is afraid that if dealers had to be competitive that the true price of the S and X would probably be 20% below the "consumer-friendly", price-fixing, communist strategy that Elon loves.

@MD - Although I have never visited a Tesla store in Canada, I assume it is a bit like the Apple store. You might get a free coffee while you look at the cars, but everything is full price. They sell all they can build. And there are no direct competitors. Not the best place to go looking for a discount. Especially if those who are serious can more than afford the car.

If Tesla used independent dealers, the dealers would have to compete on price and the consumer would pay an amount LOWER than the current fixed-price model. With independent dealers there most certainly is direct competition.

Why should someone pay $100K for a car just because they CAN pay $100K for a car? That kind of thinking burns through money and is fiscal idiocy.

MAtt - the real problem with the Tesla strategy is lack of sales and service locations. Having numerous locations - independent of the manufacturer - not only maintains competition - but is a real benefit to buyers who want to service their car nearby their homes. Across state tows - are expensive - when you need the computer reset to start the car after service - and TEsla will not be able to cover those on the cheaper cars.

@TomM From a dealer's perspective, I love Tesla price fixing and telling customers to fcuk off if they don't want to pay the price, but for a consumer, Tesla's one-price price fixing is anti-consumerist.

@MD the fixed price/high price/no discount strategy is at the opposite end of Communism, this is a Capitalist "Greed is Good" luxury branding and pricing strategy at its best. If you can't afford the car, go elsewhere as you said. Similar to how other luxury goods and stores operate, you don't give a discount on a product that is in demand. And you price your offerings to up to the level that the market will bear. Profits are not to be squandered if you are burning cash. As well Tesla is going after the cream of the market, there is only so much of that to go around. Being 10-20% cheaper won't sell an more Model S or Model X vehicles either. If the alternative is an S-Class or GL-Class you are already in the same ballpark anyway.

@canadiancomments You're beyond wrong.

So to recap: anti-consumerist price gouging is OK if people are rich.

"If Tesla used independent dealers, the dealers would have to compete on price and the consumer would pay an amount LOWER than the current fixed-price model. With independent dealers there most certainly is direct competition."

Is this a joke? You think adding another layer to the distribution model and another group makes cars cheaper? Then why not add 2 layers? You can have a group of dealers who sell the cars to other dealer and then the consumer will pay even less.

The price of a Mercedes is DEFINITELY lower because a customer can play dealers against each other.

Tesla is engaging in price fixing pure and simple.

Independent dealers and no company stores forces competition and that reduces price.

There is a Tesla Model X 6 doors down from my house. The owner is very happy. Mom likes it and the kids think it is a spaceship. Living in the future. Just like the Jetsons. They could not be happier with their choice. And they did not look at anything else. Big jump from a regular minivan too. For those who have the coin, they simply don't care. It costs what it costs in their minds and they are happy to pay. Mind you the Merc GL550 owners in my area seem pretty happy too.

Agree completely, if Tesla used dealers the price would only go up and consumers would suffer most. Even though Tesla prices are fixed, they are still bound by supply and demand. If demand drops, they have to drop prices. They also have plenty of competition that forces pricing to stay aggressive.

@SanJoseDriver, You clearly FAILED Economics 101. Two dealers selling the same car have to compete against each other for my dollar. That means I pay less.

Tesla price fixes, plain and simple.

More importantly though by pursuing this highly flawed strategy, Telsa also
(i) wildly increases its cost of capital,
(ii) eats through working capital by carrying ALL the burden of funding production (manufacturing inventory, direct sales costs, the sales channel, finished goods inventory, the repair shops, parts, labor, etc. etc.);
(iii) takes credit and business risk at both the manufactuing and distributor levels; and
(iv) takes on credit risk by both propping up used values and doing its own version of 'cheap leases' in a non-traditional manner.

Once equity and credit dries up, it all will come spectacularily crashing down. Things Tesla doesn't have/cannot have:
(i) Floor-plan finished goods inventory financing
(ii) Distributed retail risk (i.e. independent dealers)
(iii) A 'sales channel' to 'stuff' (which stabilizes the rate of sales.

All this adds up to costs the consumer has to pay - so not only does Tesla basically price fix, Tesla also has an inflated cost structure compared to the traditional manufacturer-dealer model that also raise prices.

MDarringer - can you explain to the crowd here the magic of floor plan financing? Its a good deal which supports consumer choice and inventory availability.

@mre30 Floor plan financing is a loan structure whereby the cars a dealer accepts as stock are bought on credit and then interest is accrued as long as the car does not sell. Thus, an independent dealer has an imperative to deal and to come off list to avoid paying interest on the loans they carry for every car in inventory.

A factory store has no such credit structure and therefore no imperative to deal.

Those touting retail automotive realities are not wrong, however these same retailers who make it better for consumers by competing are the same free wheeling business people who will tack $30,000 on top of the MSRP of an vehicle that is very much in demand and call it "market adjusted pricing". How high a mark up for Tesla products if they were sold at dealers? It would be huge. In this light of day you can see why the direct fixed price strategy is actually fairer for these same consumers. You can hate the player, but don't hate the game. Additionally there should be no state laws preventing Tesla or any other manufacturer from selling direct if that is what they want to do. Another good reason for campaign finance reform. Special interest laws like this only hurt competition.

Tesla's wouldn't be marked up. They would be marked down given that the market is showing saturation. These days Tesla has to offer incentives (price cuts) to move the product. The $30K number is a number pulled out of your ass to appear factual. Your argument would have been stronger had you stayed with the "market adjusted pricing" line. By throwing out a number that isn't based in fact like you did, you reduced your credibility.

As for special interest laws...so what you're saying is that we should allow all manufacturers to go to price fixing because that wouldn't be serving special interests? Really??

@MD Other cars have been marked up $30k or more. It is just an example of what could happen in the case of a Tesla product. As for a free market, you can't have a free market if you dictate through an arcane law that you must sell your product and distribute a product a certain way. If other firms are free to sell though a retail channel when they choose to or sell direct to the customer through their website, there should be no limitations when it comes to automobiles. Let the customer decided on the convenience of full service dealership and service business or buying a car from a "store" in a mall and taking it to an authorized service outlet that is not close to their house. The market will decide the winners and losers.

Why would I expect a socialist to understand anything about capitalism, free market, and economics. What Tesla is doing is the OPPOSITE of a free-market approach. Just because you keep saying that price fixing is free market, consumerist, and capitalism at its finest does not make it so.

Aren't you running late for your Mewling Vegan White Guilt Apologist meeting? Get in your Tesla and drive, boy! Oops, I shouldn't have assumed you are male.

@MD as a male who gives advice to EVP's in the financial space who has a graduate degree in international business and an undergrad in part in economics, I speak from a point of some knowledge, if only a little when it comes to the operation of global markets and the trade in goods and services globally. But I am not an expert. You seem to forget free market means FREE. You are F-R-E-E to price your offerings and run your business as you see fit, sink or swim. It is all on you. You are failing to see that core point with you comments. You may not like it from the point of the consumer, but that really has no bearing on how a business chooses to operate. There is nothing more capitalist or American for that matter than this key point. It is no different than Amazon choosing to run almost like a non profit (capex almost equals FCF each quarter), strange but entirely true. BTW no need to fall back and be nasty either. Rise above.. And make is a strip loin medium rare. Keep moving towards the light... :)

"@SanJoseDriver, You clearly FAILED Economics 101. Two dealers selling the same car have to compete against each other for my dollar. That means I pay less."

@MD,
May be you can explain us all how people employed by dealerships and their bills are paid without you paying for their overhead on top of what manufacturer sells them the cars for, be it on credit or not?

I'm stunned that Darringer actually seems to believe that adding a layer to a distribution model actually allows the end consumer to pay less?

So I repeat my question: Why not add 2 layers and make cars cheaper still?

His argument also suggests that any manufacture of any product that sells direct to consumers - you know, like the GAP, for example - is "price fixing".

Can someone actually be this thick?