There has been a big debate on how Tesla is not playing by the rules and selling their cars directly to customers without going through a dealership. The fact is, you can’t just buy a car straight from a manufacturer because of federal laws in compliance with the franchise law. This is what the traditional way of buying a car has been for the past 60 years or more, but that is changing with Tesla.

Choosing to have no dealerships around the country but rather just galleries that do not intend to sell you a Tesla but rather talk to you about the benefits of owning a Tesla or any other electric vehicle, Tesla seems to be putting the old-fashioned dealership style out of the contest.

But how does this affect us as buyers and dealers at the same time, and how do they even manage to sell cars when the law is clear to all manufacturers?

Related: This Is Why The Tesla Model 3 Is The World’s Best-Selling EV

State Franchise Laws And Tesla

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Most auto-manufacturers sell their cars through a dealership - in accordance with the state franchise laws, there will be a dealership for each automaker except Tesla. Automotive franchise policies were set decades ago to prevent automakers from unfairly building stores in direct competition with existing dealerships that had already spent time, money, and effort to open and grow their operations. This is where automakers started granting franchises and making it to the federal laws of most states that buyers have to go through a dealer if they want to buy a new car. This method has also been supported by the states as it helps local businesses, hires people locally, and most importantly there is an additional layer of taxes they could benefit from. Tesla on the other hand has not granted any franchises anywhere.

They choose to keep service centers, galleries, and stores. This new method of selling cars without the need of a dealer is supported by a few states as they consider the process beneficial to consumers because it removes the dealership markup and encourages better business practices.

Related: A Look Back At Tesla And How It Became A Phenomenon

Why Has Tesla Granted No Dealership Franchise Licenses?

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Starting with the fact that dealerships make almost no money on car sales but rather on regular services, this rules out the Tesla model as their cars do not require oil changes or transmission maintenance (electric cars don’t even have a transmission) - making the dealership business model a thing of the past. As more and more car companies are shifting towards electric fleets, there is a conflict of interest building up in more than one way.

Having to send cars to a dealer's lot, Tesla, and most certainly any other electric vehicle would face a conflict of interest when it comes to the car sale.

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Dealers want to remain profitable while not marking up the price too high to decrease demand, leaving the gap for-profit to a very small percentage. In addition, as mentioned above, dealers would be better off selling ICE cars as they would keep on a loop of maintenance for years to come rather than just selling a car and an EV and making a commission on that. According to “Tesla’s Approach to Distributing and Servicing Cars” they also mention that the reason for not having granted dealership franchises is the conflict of interest between selling gasoline cars, which constitute the vast majority of the dealer's business, and selling the new technology of electric cars. In the same article, they also mention that their cars get updated to the newest software update frequently and owners don’t have to upgrade to the next year’s model just to get hands-on features they missed when they bought their Tesla two years ago. This is an advantage Tesla cars have, which conflicts with the dealer’s interest to keep selling new technology every year.

Related: This Is Why Tesla Is Now Worth $1 Trillion

States That Do Not Allow Direct Sale Of Tesla: How To Get Hold Of A Tesla In These States?

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Some of the states that allow Tesla to sell cars directly to customers are California, Colorado, Virginia, and New Hampshire, while Texas and New Jersey still comply with the dealer franchise law. Getting hands to a Tesla isn’t impossible, it’s rather a loophole process, but it’s fairly legal.

To start, the buyer must order the car online through Tesla’s website and have the paperwork signed and shipped to the nearest state that allows Tesla to sell cars directly to the customers. From there the paperwork will be processed and boom you can now pay for your Tesla. The car will then be shipped to one of the service centers around your state. Things get more interesting as Tesla already produces cars in Texas. If you were to buy a car in Texas, they would have to ship the car out of the state and bring it back to one of their service centers before you could park it in your garage - it’s odd and strange, but this is how Texas is keeping up with the franchise law.