Freedom to buy is about the ability of a vehicle manufacturer to sell their vehicles direct-to-consumer (also sometimes referred to as “direct sales”) rather than through a franchise dealership.
Currently, consumers’ and businesses’ freedom to buy a vehicle directly from electric vehicle (EV) manufacturers is restricted or prohibited in many states.
This is because of franchise laws that were first enacted in the 1940s to protect dealerships from their franchisors—when the three large domestic vehicle manufacturers dominated the U.S. market.
In response, dealers were offered protections, such as exclusive rights to geographic sales territories, while manufacturers benefited from forgoing a massive capital investment in operating physical sales locations.
Much has changed since the mid-20th century, with many manufacturers (domestic and abroad) now competing in the U.S. market, and the transformation from neighborhood mom-and-pop dealerships to multi-billion-dollar dealership groups. However, dealers continue to benefit from the anti-competitive protections which still exist and are now preventing new EV companies from breaking into the market, forcing consumers to go out of the state to buy or service their EV of choice.
By allowing freedom to buy, manufacturers can sell EVs through retail showrooms in a state, offer test drives, train product specialists to answer consumer questions, and provide service support for repairs and maintenance. Consumers and businesses would benefit from the opportunity to purchase directly from a manufacturer, which often offers a more convenient, transparent, and cost-effective buying process, as the direct sales model offers the product at a set price—eliminating additional markups or haggling over the price. The set price also eliminates the predatory lending practices that accompany other buying models, promoting equity and fairness amongst all consumers
It’s clear that customers—whether individual consumers or fleet operators—want the freedom to buy vehicles outside the current landscape: 93% of customers polled stated that a test drive is either very or somewhat important when considering the purchase of an EV. In the 28 states that prohibit or limit direct sales, consumers with an interest in purchasing many EVs need to travel to another state to test drive that vehicle, which can be very difficult or impossible, denying them the full car purchasing experience. Still, the freedom to buy is not just a matter of consumer satisfaction.
Competition in the market would spur both manufacturers and dealers to innovate and keep prices competitive. Furthermore, direct sales would introduce a wider variety of EVs to the market, thereby granting customers greater consumer choice.
Freedom to buy does not exclusively benefit consumers, fleet operators, and EV-only manufacturers. Instead, the franchise model has seen business booming in the years since Tesla pioneered the direct-to-consumer model.
According to data from the National Automobile Dealers Association, franchise dealers perform better in states that give consumers the freedom to choose from both options. In states that were open to at least one EV manufacturer, franchise dealerships saw their sales revenue increase nearly 80% between 2012 and 2021. During the same period, states closed to direct sales only saw a 61% increase in sales revenue. Dealership employment saw a similar trend, with open states seeing an almost 11% increase in employment, whereas closed states only had just over six and a half percent increase in employment. Contrary to what has been portrayed, franchise dealerships in open states have so far benefitted from additional market competition, not seen their business model undercut.
Electrifying the U.S. transportation sector is also a crucial step in eliminating dependence on foreign oil. Historically, rates of electricity, which is domestically produced, have been low and steady compared to the variability of gas prices.
In a consumer-oriented society that upholds the principles of a free market, businesses are constantly adapting to meet consumers’ needs. Laws should not prevent innovative companies from experimenting with new ways of selling EVs and improving the consumer purchase experience.
Amy Malaki is the Director of Partnerships and Policy at SkyNRG and SkyNRG Americas, pioneering global leaders in sustainable aviation fuel production and supply. Prior to SkyNRG, Amy was the Associate Director for the transportation portfolio at the ClimateWorks Foundation where she developed philanthropic investment strategies to advance a sustainable, equitable and low-carbon mobility system. She also pioneered the organization’s international aviation decarbonization strategy. Prior to that she focused on Asia business development at Better Place, a Silicon Valley electric vehicle network startup. She has a B.A. in Chinese and China studies from the University of Washington and an M.A. in international policy studies (energy and environment) from Stanford University.