8 ms·

Tesla Buys a Company in a State Where It’s Barred from Selling Cars

34 points by doppp 12y ago

onion2k 12y ago
Yet this deal likely has little to do with reaching consumers, but rather tapping into the state’s vast supply of auto parts suppliers. They're indirectly making a link between Michigan jobs and Tesla's success. As Tesla gets bigger it'll make that law look like it's holding Michigan's manufacturing industry back rather than helping the state's car sellers defend their businesses. People care about manufacturing jobs a lot more than retailers.
- jobu 12y ago
  Hopefully that's true, but auto dealers are huge contributors to elections (even bigger than auto manufacturers - https://www.opensecrets.org/industries/indus.php?ind=T2300 https://www.opensecrets.org/industries/indus.php?ind=T2300 )
- fleitz 12y ago
  Imagine there was a law where the big 3 couldn't sell cars online in CA, and they bought a company that puts internet into cars in SF... It's probably because they want internet in their cars... not because they are trying to put the state legislature on the arm.
- bsdetector 12y ago
  So why would Tesla even care about sales in Michigan? Musk always implies that Tesla is production constrained (again just two days ago in Q1 earnings call), and Michigan isn't one of the states with ZEV program, so a sale in Michigan earns Tesla $30k less than a sale in California or Massachusetts or the other 8 ZEV states. Selling in Michigan costs Tesla money. And why is Tesla so against dealers? As long as Tesla is showing the "internet price" then customers can see exactly how much the dealer is higher so buying from a dealer wouldn't even be a bad experience. A Tesla dealer would be more like CarMax, or at worst a Saturn dealership. I think it's worth considering that Tesla may in fact be demand constrained not production constrained, and that's why they need to sell in these states where they earn less. And they don't want dealers because they are much more transparent about demand.
  - rosser 12y ago
    Tesla isn't only selling in ZEV states. Are they also losing money to "prop up" numbers in the non-ZEV states they are selling in?
    - bsdetector 12y ago
      If Tesla is production constrained then they can sell the same unit in Michigan and get $100k income, or they can sell it in California and get $130k income then use that extra $30k to increase production. So why sell in Michigan?
      - toomuchtodo 12y ago
        Because everyone's money is green.
        wlesieutre 12y ago
        If they're production constrained, they can't do both. Sell one car and make $130k or sell one car and make $100k. Not sell two cars and make $230k.
  - NathanKP 12y ago
    > And why is Tesla so against dealers? I'm not a representative of Tesla, but if I was Elon Musk I wouldn't want my product being sold by dealerships either. The dealership industry is an outdated, parasitic system that has nothing to offer Tesla. It is little more than a middleman which saps away profit that could be going to Tesla itself. On the other hand Tesla has everything to gain in revenue, image, brand value, and consumer experience by running their own boutique stores. The dealerships have also gone way too far trying to get legislation passed to stop Tesla and protect their parasitic business model rather than adding any real value that makes them useful to Tesla. That in my opinion turns this into something more personal, a battle in which Tesla wins more respect the more they fight back. By refusing to sell the vehicle entirely they actually gain in status (the more difficult to obtain good gains value) and they progress toward the longer term goal of making profit free of parasitic middlemen. The alternative would be to make a few more dollars in the short term by using dealerships but lose in the long term. The Elon Musk suite of companies has always been very long term focused so I'm not surprised to see them working toward long term vision rather than giving in on a short term battle. Basically to Tesla the future is selling their goods (not only cars but also Powerwalls, and whatever else they have in development) directly to customers in order to improve profit margin, and they aren't going to give in on the road to making that happen. A boutique store for selling vehicles today can sell Powerwalls the next year. This makes Tesla much more robust instead of being reliant on a middleman.
alrs 12y ago
Tesla isn't banned from selling cars in Michigan, they're not allowed to sell manufacturer-direct. No one in Michigan is allowed to sell manufacturer-direct.
- JoshTriplett 12y ago
  > Tesla isn't banned from selling cars in Michigan, they're not allowed to sell manufacturer-direct. Which means they're banned from selling cars. They have to use intermediaries to sell cars for them. > No one in Michigan is allowed to sell manufacturer-direct. Imagine if the recording industry had successfully lobbied for laws that prevented anyone from selling music directly. "IndieBandFoo isn't banned from selling music in the US, they're not allowed to sell artist-direct. No one in the US is allowed to sell artist-direct." This restriction is no less ridiculous.
  - alrs 12y ago
    I don't support the law, but I take issue with journalists that allow Tesla to frame the debate as "barred" from selling cars. They could sell cars through franchised dealerships, and they choose not to.
    - Igglyboo 12y ago
      Selling cars through a dealership is not Tesla selling cars it's the dealership selling cars, it's ridiculous that they cannot sell their own product to consumers without paying a middleman.
    - modfodder 12y ago
      Tesla is barred from selling cars in Michigan. They are not barred from allowing someone else to sell their cars in Michigan.
      - diminoten 12y ago
        That's what he's saying -- the article and comments here are being made in the thrust of "Teslas can't do their primary business in Michigan,". That's not true.
modfodder 12y ago
Wonder if there is a move here where Tesla threatens to move Tesla Tool and Die out of Michigan. Not sure if Riviera is big enough for that threat to be viable, and also doesn't seem like a move Elon would make. (Just thinking out loud).
- toomuchtodo 12y ago
  Might make sense to move them to Freemont, or (less so) Reno near the Gigafactory if they can batch shipments from both facilities together.
javert 12y ago
I hope Tesla immediately moves the business out of Michigan. They should not subsidize, with their taxes, a state that treats them, and its own citizens (who can't buy Teslas), like utter shit.
- ironchef 12y ago
  There's definitely Tesla owners in Michigan. They just buy them in other states and drive them back in. Of course the main issue is the law that disallows corporate owned service centers. Hopefully, either they get the law tossed OR Tesla simply employs a third party to provide service in some manner.
- jsmthrowaway 12y ago
  Why punish workers and take their job due to strategic reasons beyond their control? Worst idea I've ever heard. The mobility we have as white-collar tech employees is rare. A blue-collar Michigander is not going to follow Tesla out of state.
  - javert 12y ago
    > Why punish workers and take their job due to strategic reasons beyond their control? This is blaming the victim (namely Tesla). The only blameworthy party is the Michigan government and Michigan voters as a whole. > The mobility we have as white-collar tech employees is rare. A blue-collar Michigander is not going to follow Tesla out of state. That's false. White collar and blue collar workers are equally free to move around.
rmason 12y ago
This is huge news for West Michigan. Spoke with some entrepreneurs in Grand Rapids and they were busting with civic pride. There are already rumors that Tesla will make another purchase in West Michigan. So now Tesla has motivated the economic development people in West Michigan to push to repeal the law that stopped Tesla from selling cars because it will mean more jobs for them. I predict Tesla will eventually be allowed to sell cars in the state as a result of this purchase so it is a double win for them.
chiph 12y ago
Going vertical on this is a good plan by Tesla management. Stamping dies are hugely expensive, and this will give them lower costs in the long run -- the dies wear out after a certain number of machine operations and have to be replaced. There's also a trade-secret aspect to this. Since Tesla previously had to farm this out, there was a chance of a competitor seeing their dies at the 3rd party company. Not so now.

34 points by doppp 12y ago

Yet this deal likely has little to do with reaching consumers, but rather tapping into the state’s vast supply of auto parts suppliers. They're indirectly making a link between Michigan jobs and Tesla's success. As Tesla gets bigger it'll make that law look like it's holding Michigan's manufacturing industry back rather than helping the state's car sellers defend their businesses. People care about manufacturing jobs a lot more than retailers.

jobu 12y ago
Hopefully that's true, but auto dealers are huge contributors to elections (even bigger than auto manufacturers - https://www.opensecrets.org/industries/indus.php?ind=T2300 https://www.opensecrets.org/industries/indus.php?ind=T2300 )
fleitz 12y ago
Imagine there was a law where the big 3 couldn't sell cars online in CA, and they bought a company that puts internet into cars in SF... It's probably because they want internet in their cars... not because they are trying to put the state legislature on the arm.
bsdetector 12y ago
So why would Tesla even care about sales in Michigan? Musk always implies that Tesla is production constrained (again just two days ago in Q1 earnings call), and Michigan isn't one of the states with ZEV program, so a sale in Michigan earns Tesla $30k less than a sale in California or Massachusetts or the other 8 ZEV states. Selling in Michigan costs Tesla money. And why is Tesla so against dealers? As long as Tesla is showing the "internet price" then customers can see exactly how much the dealer is higher so buying from a dealer wouldn't even be a bad experience. A Tesla dealer would be more like CarMax, or at worst a Saturn dealership. I think it's worth considering that Tesla may in fact be demand constrained not production constrained, and that's why they need to sell in these states where they earn less. And they don't want dealers because they are much more transparent about demand.
- rosser 12y ago
  Tesla isn't only selling in ZEV states. Are they also losing money to "prop up" numbers in the non-ZEV states they are selling in?
  - bsdetector 12y ago
    If Tesla is production constrained then they can sell the same unit in Michigan and get $100k income, or they can sell it in California and get $130k income then use that extra $30k to increase production. So why sell in Michigan?
    - toomuchtodo 12y ago
      Because everyone's money is green.
      - wlesieutre 12y ago
        If they're production constrained, they can't do both. Sell one car and make $130k or sell one car and make $100k. Not sell two cars and make $230k.
- NathanKP 12y ago
  > And why is Tesla so against dealers? I'm not a representative of Tesla, but if I was Elon Musk I wouldn't want my product being sold by dealerships either. The dealership industry is an outdated, parasitic system that has nothing to offer Tesla. It is little more than a middleman which saps away profit that could be going to Tesla itself. On the other hand Tesla has everything to gain in revenue, image, brand value, and consumer experience by running their own boutique stores. The dealerships have also gone way too far trying to get legislation passed to stop Tesla and protect their parasitic business model rather than adding any real value that makes them useful to Tesla. That in my opinion turns this into something more personal, a battle in which Tesla wins more respect the more they fight back. By refusing to sell the vehicle entirely they actually gain in status (the more difficult to obtain good gains value) and they progress toward the longer term goal of making profit free of parasitic middlemen. The alternative would be to make a few more dollars in the short term by using dealerships but lose in the long term. The Elon Musk suite of companies has always been very long term focused so I'm not surprised to see them working toward long term vision rather than giving in on a short term battle. Basically to Tesla the future is selling their goods (not only cars but also Powerwalls, and whatever else they have in development) directly to customers in order to improve profit margin, and they aren't going to give in on the road to making that happen. A boutique store for selling vehicles today can sell Powerwalls the next year. This makes Tesla much more robust instead of being reliant on a middleman.

alrs 12y ago

Tesla isn't banned from selling cars in Michigan, they're not allowed to sell manufacturer-direct. No one in Michigan is allowed to sell manufacturer-direct.

JoshTriplett 12y ago
> Tesla isn't banned from selling cars in Michigan, they're not allowed to sell manufacturer-direct. Which means they're banned from selling cars. They have to use intermediaries to sell cars for them. > No one in Michigan is allowed to sell manufacturer-direct. Imagine if the recording industry had successfully lobbied for laws that prevented anyone from selling music directly. "IndieBandFoo isn't banned from selling music in the US, they're not allowed to sell artist-direct. No one in the US is allowed to sell artist-direct." This restriction is no less ridiculous.
- alrs 12y ago
  I don't support the law, but I take issue with journalists that allow Tesla to frame the debate as "barred" from selling cars. They could sell cars through franchised dealerships, and they choose not to.
  - Igglyboo 12y ago
    Selling cars through a dealership is not Tesla selling cars it's the dealership selling cars, it's ridiculous that they cannot sell their own product to consumers without paying a middleman.
  - modfodder 12y ago
    Tesla is barred from selling cars in Michigan. They are not barred from allowing someone else to sell their cars in Michigan.
    - diminoten 12y ago
      That's what he's saying -- the article and comments here are being made in the thrust of "Teslas can't do their primary business in Michigan,". That's not true.

modfodder 12y ago

Wonder if there is a move here where Tesla threatens to move Tesla Tool and Die out of Michigan. Not sure if Riviera is big enough for that threat to be viable, and also doesn't seem like a move Elon would make. (Just thinking out loud).

toomuchtodo 12y ago
Might make sense to move them to Freemont, or (less so) Reno near the Gigafactory if they can batch shipments from both facilities together.

javert 12y ago

I hope Tesla immediately moves the business out of Michigan. They should not subsidize, with their taxes, a state that treats them, and its own citizens (who can't buy Teslas), like utter shit.

ironchef 12y ago
There's definitely Tesla owners in Michigan. They just buy them in other states and drive them back in. Of course the main issue is the law that disallows corporate owned service centers. Hopefully, either they get the law tossed OR Tesla simply employs a third party to provide service in some manner.
jsmthrowaway 12y ago
Why punish workers and take their job due to strategic reasons beyond their control? Worst idea I've ever heard. The mobility we have as white-collar tech employees is rare. A blue-collar Michigander is not going to follow Tesla out of state.
- javert 12y ago
  > Why punish workers and take their job due to strategic reasons beyond their control? This is blaming the victim (namely Tesla). The only blameworthy party is the Michigan government and Michigan voters as a whole. > The mobility we have as white-collar tech employees is rare. A blue-collar Michigander is not going to follow Tesla out of state. That's false. White collar and blue collar workers are equally free to move around.

rmason 12y ago

This is huge news for West Michigan. Spoke with some entrepreneurs in Grand Rapids and they were busting with civic pride. There are already rumors that Tesla will make another purchase in West Michigan. So now Tesla has motivated the economic development people in West Michigan to push to repeal the law that stopped Tesla from selling cars because it will mean more jobs for them. I predict Tesla will eventually be allowed to sell cars in the state as a result of this purchase so it is a double win for them.

chiph 12y ago

Going vertical on this is a good plan by Tesla management. Stamping dies are hugely expensive, and this will give them lower costs in the long run -- the dies wear out after a certain number of machine operations and have to be replaced. There's also a trade-secret aspect to this. Since Tesla previously had to farm this out, there was a chance of a competitor seeing their dies at the 3rd party company. Not so now.