Tesla's uniqueness and novelty is manifested not only in its innovative products and high-tech design features, but also in its distinctive method of sale: direct selling.
The direct sale model allows Tesla to form more personalized relationships with consumers and offer a higher degree of customer service to match the extremely customizable and specifically tailored vehicles that it produces. This model also makes sense for Tesla because it can then avoid the extra maintenance costs required to employ a traditional dealership to stock inventory and provide after-sales services, especially seeing as electric automobiles do not require conventional services.
However, there is a catch: the direct sales model still lacks legitimacy in multiple American states. This has resulted in Tesla being embroiled in a slew of legal battles across the country, namely in states such as Texas, Connecticut, Indiana and Michigan. Louisiana was the most recent region to fall prey to instituting a law that prevents direct selling in the state.
"We are disappointed that special interests managed to ban Tesla's operations in Louisiana against the will of consumers," the company said in a statement.
Tesla's fight continues to rage on, particularly in Michigan. Tesla filed a lawsuit to overturn the prohibition of direct sales in Michigan, and now the automaker is trying to view any communication that took place between the car dealers and two lawmakers. The company is allegedly targeting lawmakers Sen. Joe Hune and Jason Sheppard, who are said to be lobbying against Tesla.
Many local authorities are justifying the bans by saying that they want Tesla to partner with local dealerships instead to augment local business growth and prosperity. On the other hand, Tesla argues that its establishment in states like Louisiana would inject millions into the economy, endowing them with jobs while contributing to local tax revenue.
One thing is clear for sure: the legal complications and blockage of potential revenue streams has lowered investor's faith in the company, causing Tesla's (NASDAQ: TSLA) stock to steadily fall recently. It has also allowed competitors to gain significant access in places it cannot reach, including conventional automotive companies like Ford and Toyota, for which states like Michigan have become a stronghold.
That being said, not all hope is lost. A judge has approved a dealer license that the DMV has issued to Tesla last year in Arizona. This small but notable victory occurred when Tesla went to court instead of through the traditional legislative process to prove that the law shouldn't apply to them since they never had any franchise dealerships and therefore, it's not prejudicial for them to compete in the space.
Either way, one thing is clear for sure: the direct selling model is integral to Tesla's success in the short term as the electric vehicle market is at a premature but blossoming stage and the company is still yet to testify itself in the mass market to experience economies of scale. However, investors must be wary of Tesla's resources being tied up on multiple fronts, as Tesla's future will be clear only after these legal issues come to fruition in some way.