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Kelley Blue Book: Tesla finds a loophole in states where dealerships are forbidden: Tribal lands

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Tesla gets a lot of credit for revolutionizing the auto industry, but drivers and industry insiders see different revolutions. The hidden one is ongoing, and the now-Texas-based electric carmaker has made an interesting maneuver in that war — opening dealerships on Native American tribal lands.

The real revolution is about how cars are sold

To auto industry veterans, the company’s jaw-dropping achievement isn’t popularizing electric cars. That may have been inevitable as the consequences of climate change began to hit Americans.

The big achievement, instead, was making direct-to-consumer car sales possible.

A miasma of state and local laws governs car sales in America. But when Tesla
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+2.75%

opened its doors in 2003, one rule held fast almost everywhere: Automakers couldn’t sell cars to buyers.

They had to work through dealerships as middlemen, and those dealerships had to be independent businesses.

This structure evolved in the first half of the 20th century, largely as a way of spreading risk. A bad model with little public appeal could sink an automaker, and companies didn’t know if their new designs would succeed until after they hit the market. So, working with sales experts who knew local communities helped them succeed and spread out the hit when they failed.

Those conditions are, arguably, gone today. Thanks to the proliferation of press and internet car enthusiasts, automakers generally know the public’s response to a new design before it ever reaches the market. They’re better at designing successful cars consistently.

So, Tesla pushed for the right to sell cars directly to consumers.

In some states, it worked. The company’s lobbyists got laws changed. Tesla now directly owns dealerships in some states. In others, it operates “galleries” where interested shoppers can see the cars but must order them from home.

Ironically, Tesla has moved its headquarters to Texas but can’t sell cars there. Texans can order a Tesla delivered to their home but must handle titling it themselves.

In a handful of states, however, Tesla is still prohibited from operating any sort of gallery.

Tribal land isn’t subject to state jurisdiction

Indigenous tribes, however, control land within a state but are not subject to most of its laws. Tribal land is subject to federal law.

As Stephen Pevar of the American Civil Liberties Union explains in the book “The Rights of Indians and Tribes,” which discusses Federal Indian Law, “tribes were sovereign nations centuries before Europeans arrived on this continent, and they continue to exercise the powers of a sovereign government.”

Tribal land, legally, is something akin to occupied foreign territory. It’s often governed by treaties the tribes have signed with the U.S. (though the federal government has a poor record of honoring its treaty commitments). But, crucially, those aren’t treaties between the tribe and any state government.

Tribes then enforce their laws on their own land and are often subject to federal law. But they sit outside state jurisdiction.

So, Tesla has just opened its second store on tribal land.

Move brings Tesla service to Albuquerque, Santa Fe areas

Both are located in New Mexico, which forbids automakers from owning dealerships or even indirectly performing service on cars. Before this move, New Mexico residents could order a car from out of state but had to title it themselves and bring it to neighboring Arizona or Colorado dealerships for service.

Now, they can bring it to the First Nation of Nambé Pueblo, where they’ll find a fully functional Tesla store complete with service bays. It’s just north of Santa Fe.

Next May, a second will open on the lands of the Santa Ana Pueblo, about 30 minutes north of Albuquerque.

The Albuquerque Journal explains, “Although New Mexico prohibits direct-to-consumer car sales — which is the only type of sales that Tesla makes — as sovereign nations, Nambé and Santa Ana pueblos don’t have to follow the state law.”

Under an agreement with the tribal government, Tesla will train tribal members to serve as service technicians.

Car sales are evolving, and evolution is hard to predict

Tesla can’t operate in every state and lacks service centers close to some fairly large car markets. Traditional automakers have an advantage because it’s still much easier to get your new Hyundai
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serviced in many areas than your Tesla.

As traditional automakers launch more electric cars, Tesla’s huge lead in electric car sales is eroding.

But the company’s creativity has left it in an enviable position wherever it does grab a beachhead — it doesn’t split the profit from car sales with dealers.

It’s telling that many new EV startups, like Rivian
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and Lucid
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,
are adopting the Tesla model rather than reaching out to established dealership groups to build relationships.

How will traditional automakers compete?

Most seem to be holding fast to the dealership model for now.

Volvo
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has announced plans to sell part of its lineup entirely online.

Ford
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+2.28%

 has publicly mused about moving to a Tesla-like sales model. But, earlier this year, Ford CEO Jim Farley took that possibility off the table to entice dealers to commit to selling electric cars.

Keeping a dealership network gives those companies a huge footprint advantage — there’s probably a service bay within an easy drive of you for most automakers. There may not be one for Tesla.

But with 574 federally-recognized tribal governments in 35 states, Tesla’s new strategy could do a lot to close that advantage.

This story originally ran on KBB.com

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