Reforming Car Dealership Laws Could Boost EV Penetration

Unlike most consumer products that you can buy from either a retailer or directly from the producer, car sales can only be conducted via dealerships. Seventeen states, including Connecticut, Texas and Wisconsin, have policies that outlaw direct vehicle sales, forcing automakers to sell their vehicles through dealerships. And since these dealerships generally earn less than 10% on the sale of every new car, they earn most of their revenue through servicing, add-ons and car loans. The very nature of electric vehicles (“EV”) makes them virtually incompatible with this sales model.

For starters, EVs require less maintenance over their lifetime, meaning dealerships wouldn’t earn as much if they stocked their lots with electric cars. Additionally, only 11 states including Georgia, Florida and New York, allow a single EV maker (Tesla) to open locations and sell directly to customers. EV makers Rivian, Lucid and Tesla have joined forces to fight against the decades-old car dealership system. Not only has this system allowed dealerships to gain an enormous amount of power and money, but it is also an active hindrance to the adoption of EVs in the country.

Data from IHS Markit shows that in Florida, where there is significantly less public charging infrastructure than New York and the governor has questionable views on climate change, residents bought 24,000 more EVs than New Yorkers from 2019 to mid-2021 because the Sunshine state has 17 Tesla stores compared to New York’s five Tesla stores. Furthermore, Rivian VP of Public Policy James Chen says that the nearly 1,000 franchised dealers in New York collectively sold less than two electric cars per location while each Tesla location sold around 1,890 EVs in the same period.

A blind-shopper study by Sierra Club recently found that car dealerships across the country are not prepared to sell electric cars. Many of them don’t even have a fully charged EV on the lot, and their salespeople could hardly answer any questions about EV technology. In fact, study author Hieu Le says some salespeople urged people to buy internal combustion engine cars instead. This is why electric vehicle makers are fighting the dealership system. Customers interested in EVs will have numerous questions about the technology, and they need someone who knows how EVs work, battery range, and long-term maintenance, among other things.

Jared Allen, VP of communications at the National Automobile Dealers Association, says franchised dealers are excited about EVs. But with the country looking to phase out the sale of new ICE cars to combat climate change, we will need to reform car dealership laws so that companies such as NIO Inc. (NYSE: NIO) can be directly involved in reaching out to the potential buyers of their vehicles.

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