Feb 16, 2021 - Economy

Cutting out the middleman on electric car sales

Illustration of tire marks indicating a car has driven around a car dealership sign

Illustration: Annelise Capossela/Axios

The auto industry is in the midst of the biggest transformation in a century, with cars one day running on electrons, not gasoline.

Why it matters: But it's not just the cars that are changing. How we buy and service them is being disrupted, too. Instead of selling cars through franchised dealers, emerging auto manufacturers want to sell electric vehicles direct to consumers, either online or in their own stores.

  • But that's illegal in more than half the states in America, which environmentalists and consumer groups argue is holding back EV adoption and keeping the U.S. from achieving emissions reduction goals.

What's happening: A coalition of EV companies and advocates is working state-by-state to overturn decades-old laws that prohibit car manufacturers from opening their own stores or service centers.

  • Tesla started the fight in 2014; now newcomers like Rivian, Lucid and Lordstown Motors are joining the effort, too.
  • "What did the global pandemic teach us? It's that people want a better way to buy a car," Rivian's vice president of public policy, James Chen, tells Axios.

Where it stands: At least 20 states allow EV manufacturers to sell directly to consumers, including California, Illinois and Florida. The latest was Colorado, which passed a law last March.

  • In eight other states, including New York, Tesla fought for an exemption from the franchise laws, but it doesn't apply to other EV manufacturers.
  • One of those states, Washington, took up a bill this week that would remove the restriction for all EV makers.
  • In Michigan, where Rivian is based, the rules are exceptionally twisted: EV makers can conduct "sales-like" activities at branded stores, but the actual sale — transfer of title — must take place in another state.
  • The remaining states, including Texas — where Tesla is building a new gigafactory — prohibit EV manufacturers from direct sales.

The big picture: The dealer franchise laws were passed in the 1950s to protect car dealers from having to compete with factory-owned stores.

  • As a result, carmakers like GM and Ford wholesale vehicles to independent dealers, who turn around and sell those cars to consumers at a markup.

What they're saying: EV startups don't want a middleman selling or servicing their high-tech products.

  • "We have a desire to have direct touch with our customers," says Rivian's Chen.
  • Neither does Lucid, which plans to sell its luxury EVs at company-owned "studios" or online. Cars would be picked up for service, or maintained by mobile service fleets.

The other side: "The direct-sales model wasn’t built to sell EVs," says Jared Allen, a spokesman for the National Automobile Dealers Association."

  • "It was built to limit competition for both sales and service by creating a vertical channel for manufacturing, sales and service that allows a single entity to control everything, including prices."

The intrigue: GM and Ford initially backed the dealers in their fight against Tesla, but now they have skin in the EV game, too.

  • GM says it aims to phase out gasoline vehicles by 2035 and Ford has a $500 million stake in Rivian.
  • Both companies are investing heavily in EV development and asking dealers to do the same to get their showrooms EV-ready.

What's needed: Daniel Crane, a University of Michigan professor tracking the issue suggests a legislative compromise.

  • Traditional cars could continue to be sold and serviced only by franchised dealers.
  • But EVs and future technologies could be sold directly by both legacy carmakers and startups.
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