Tesla Motors, Inc. (TSLA) continues to chip away at the auto dealer stronghold across the US on a state-by-state basis. In a deal affirmed by New York Governor Andrew Cuomo Friday, Tesla can operate a maximum of five company-operated retail stores in the state.
“Today's agreement reaffirms New York's long-standing commitment to the dealer franchise system, while making sure New York remains a leader in spurring innovative businesses and encouraging zero emissions vehicle sales," said Cuomo.
The announcement comes only a few days after Elon Musk, Tesla’s co-founder, ended a deadlock with auto dealers in Ohio. Subject to the Ohio government’s approval, Tesla can now operate two company-owned retail stores in Ohio and open another.
Compared to the Ohio deal, the New York deal comes at a premium as Tesla was able to bargain for more stores, and the official legislative approvals remain a mere formality as government officials were already involved in the negotiations. Since Tesla primarily targets wealthy consumers, the region’s high net worth population puts Tesla in a favorable market position.
A few days ago, the Texas cities of San Antonio and Tucson showed serious interest in hosting the GigaFactory.
Tesla’s success in penetrating the auto dealers lobby in multiple states comes as a result of the company’s hunt for an ideal location to set up its GigaFactory. The $5 billion project will provide employment for around 6,500 people in the host city, which is why states and cities are desperate to accommodate Tesla, even at the cost of bending local laws and running the risk of threatening the long-established auto dealership industry in the country.
Tesla’s insistence to employ the direct selling model is not unwarranted. The model allows for a leaner cost structure and provides convenience, choice, and better service for consumers. Elon Musk refers to it as a “win-win” situation for all. The low-cost structure of the direct distribution model has an industry-wide appeal. For Tesla’s niche market, the model appears to be the perfect strategy.
The National Highway Traffic Administration (NHTSA) had been investigating Tesla’s safety measures for vehicle manufacturing, following two unfortunate incidents. Two of Tesla’s Model S vehicles caught fire after the battery packs installed underneath the cars suffered damage. Although no casualties were recorded, the cars were completely destroyed.
Tesla acknowledged the fault and has confirmed the addition of an aluminum shield and a titanium bar to the underbody of its vehicles in order to prevent low-lying objects on the road from piercing the sensitive battery packs. The NHTSA ended its investigation after the electric car manufacturer vowed to improve its safety measures.
Tesla’s stock closed 2.44% higher on Friday. The stock has returned more than 460% in a year.