EV Companies Win Direct-to-Customer Sales Victory in Colorado

In March 2020, Rivian won a big victory in Colorado when SB20-167 passed, changing an existing law that did not allow direct vehicle sales from automakers in the state. The new law allows EV-only automakers to sell directly to customers via storefronts or websites in Colorado. The two main automakers affected by these changes are Tesla and Rivian, as their business models rely on direct sales and not the traditional dealership model. 

Why the Direct Sales Model?

The traditional sales model for automakers is to sell their vehicles via franchised dealerships, so the dealerships are seen more like middlemen in the car buying equation. In a direct sales model, most notably used by Tesla, customers either purchase their vehicle directly from the automaker’s website or from a storefront owned directly by the company (not a franchise location). In Tesla’s current model, the staff working at the storefronts do not earn commission on vehicles sold, but are tasked with answering customer questions and explaining the vehicle features. If existing automakers were to employ the direct sales model, there would be conflicts of interest with existing dealerships and established revenue streams.

Colorado is relatively unique in terms of its prohibition on direct sales models for vehicles. Most other states had long-standing bans for the direct sales model, but Colorado was late to the game. The original ban on direct sales of vehicles in Colorado was passed in 2010. However, since Tesla already had a storefront in the state at the time, the company was grandfathered in and allowed to continue business as usual. 
For now, franchising laws in most states do not allow for direct vehicle sales to customers from a storefront for existing automakers. However, in a previous version of the Colorado bill all automakers would have been able to sell EVs via a direct sales model, which brought about the question of how the relationship between automaker and dealership would evolve. 

The Future of Selling EVs

Colorado is not the only state changing legislation around direct sales of vehicles, and likely will not be the last. In January, Tesla reached a  settlement agreement with the state of Michigan in a long-fought legal battle to overturn the ban on direct sales. While the legislation does not officially allow direct sales, under the settlement, Tesla will be allowed to exploit loopholes in existing laws in order to sell and service their vehicles in the state. 

Tesla is currently spearheading the fight against state legislation prohibiting direct-to-customer sales models. As more EVs start selling vehicles, the fight will only intensify and potentially put the existing dealership model at risk of extinction.