Electric Vehicles Might Kill Car Dealerships

Replicating Tesla

As the popularity of electric vehicles grows, legacy automakers are looking for ways to get ahead in the highly competitive market. And that includes selling cars through different channels.

Traditionally, car dealerships have been an essential piece of both the new and used car markets. But Tesla has built a successful direct-to-consumer, or DTC, model, proving a dealership network is not necessary to succeed in selling cars.

Other automakers like Lucid (LCID) and Rivian (RIVN) are looking to replicate Tesla’s success in the EV market by adopting the same DTC approach.

Pricing power

Tesla remains the leader in the EV market by a significant margin. This is mainly due to its early-mover advantage, as well as its sophisticated technology. But one aspect of the company’s success is its ability to sell cars DTC.

By cutting out dealers, Tesla retains more power over the pricing of its vehicles. At the same time, Tesla is also able to build a closer relationship with each customer and potentially leverage it for future sales.

Whether it’s possible for legacy carmarkets to rid themselves of their dealer network remains to be seen.

Watt’s Coming for Dealerships?

Car dealerships have been through plenty of changes in the past few years.

First, in order to adapt to the digital transformation, they had to move more services online. Subsequently, the pandemic forced dealers to operate with far less new car inventory on the lot, not to mention the flurry around used vehicles during the height of the pandemic. Finally, automakers are calling on dealers to invest millions into infrastructure upgrades to prepare for the coming wave of EVs.

Now the direct to consumer trend is threatening the car dealership institution altogether. At the same time, even Tesla has showrooms and shoppers can always use a place to test drive cars and ask questions, so dealers are unlikely to disappear entirely. But if trends continue, the car-buying process could be a far way off from where it is today.

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