Karma Adds New Franchise Partner – Is the Hybrid Dealer Model the Future?
By Edward A. Sanchez – Sept. 20, 2021
It’s no secret that Tesla and the National Automobile Dealers Association (NADA) and its state-level organizations have been at odds over the legality of selling cars factory-direct without having to go through an independent franchisee. Further complicating the situation is regulations vary from state to state. In some states, it’s perfectly legal to sell a car directly to the consumer. In others, the only stipulation is that they’re outside of a certain distance of a competing franchise store. And in states beyond that, it’s outright prohibited, forcing customers to go through a byzantine process of initially registering the car out of state, then going through a DIY registration change, something that is typically handled by the dealership at the point of purchase.
You may remember Episode 21 of our podcast, where we interviewed Jeff Holland of Karma Automotive. Unlike Tesla and some other EV startups, Karma is taking a more pragmatic, case-by-case approach to sales and distribution. Where it’s permitted, the company is taking a factory-direct approach. Where it’s not, the company is finding franchise partners to sell and service its cars.
The company said it had several dealership partners in Texas, a state notoriously hostile to the factory-direct model, and just announced a new franchise partner, Manhattan Motorcars in New York City. That particular dealership is a multi-brand store, also selling Bentley, Bugatti, Koenigsegg, Lamborghini, Porsche, Rimac, and Rolls-Royce.
Tesla, meanwhile, received a special one-time exemption in New York, allowing the company to have five stores statewide. Subsequent newcomers such as Rivian, Lucid, and others are effectively locked out of direct sales unless they’re grandfathered in under Tesla’s exemption, or the franchise requirement is changed.
Although Elon Musk has hypothetically left the door cracked open for the possibility of franchise dealer sales at some point in the future, he has claimed the business model of franchise dealerships is inherently anti-EV, due to their long-tail dependence on service and maintenance revenue, which is much lower for EVs than for ICE vehicles, as well as their tendency to lard up the bottom-line with a bunch of unnecessary add-ons, regardless of whether the OEM wants them to or not. (I have experienced this first-hand).
Karma Automotive utilizes a hybrid approach to vehicle sales, involving both direct-to-consumer and dealerships. Is this the best model in today’s controversial car sales climate?
We are rapidly approaching the point where the majority of new cars will be battery electric. In 15 to 20 years, Teslas will no longer be as “special” as they are now. Dealers will have to adjust their business models to factor in the lower need for maintenance on EVs, and perhaps add espresso bars or cafes to bolster their bottom line instead.
Although somewhat more complicated from an accounting and logistical standpoint, perhaps Karma’s hybrid approach is the best way for emerging EV brands to expand their footprint without a lot of drama and resistance.
I see Musk’s point, and based on my predominantly negative personal experiences with franchise dealerships, I don’t blame him. But until the laws change nationwide to allow direct sales, for the time being at least, maybe it’s better to make friends than enemies.
(Images courtesy Karma Automotive)
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