Why Rivian Won't Sell Its Electric Trucks Through a Dealership

Lawmakers in Colorado may allow any electric vehicle to be sold directly to customers, and Rivian hopes other states follow that lead.

Rivian

As Rivian prepares to offer its electric trucks and SUVs for sale, there's one thing the company doesn't plan on doing: opening dealerships. 

Colorado lawmakers are considering a bill that would carve out an exemption for electric vehicle sales from the state's dealership franchise law, Automotive News reports. The bipartisan-supported bill would allow any EV—including those made by established companies like General Motors or Ford—to be sold directly to consumers, skipping over the traditional dealership chain.

That would include Rivian, an exciting newcomer in the EV space that's captured headlines for its stylish truck and SUV designs and a deal to build vehicles for Lincoln. But like Tesla before it, Rivian needs states like Colorado to loosen strict franchise laws in order to go direct to buyers.

"We believe that our customers are best served and have the most seamless experience by running that [sales and service] process," said Rivian Vice President of Public Policy James Chen in a phone interview with The Drive. "We are not going to a franchised dealer system—period." 

Washington had a similar bill come up, but Automotive News notes that it hasn't advanced out of committee in time to be considered in this legislative session, which ends in March. Likewise, there's an effort to expand Pennsylvania's direct-sales exception for Tesla to new automakers with similar sales models. 

"Rivian's relationships with its customers will be very different," Chen said. "We want the customer to have that seamless experience with our electric vehicles. That means that with their permission, we would have direct connectivity to them and not a third-party dealer," he continued.

Unless a customer opts out of data sharing, Rivian plans to monitor each customer's vehicle for any issues they might encounter. 

"With their permission, we can monitor their vehicles just to make sure it's operating at optimal condition: that the energy across the cells is being balanced appropriately, that the charging is operating well, that the motors are at peak efficiency, that the cooling systems for the battery, [and] the motors and the cabin are all working in concert with each other," Chen explained.

"If there's a problem, we can reach out to that customer, perhaps even before the customer recognizes there's an issue with their car," Chen continued. "And if it's a software update or fix, we can push that out to them over the cellular network at a time that is convenient to them—i.e. at 2 a.m. when the car's sitting at home and charging and the owner is asleep. We can't do that if we have to go through a franchised dealer."

It's worth noting (as Automotive News did) that Chen previously held a similar role at Tesla, which largely pioneered the modern direct sales model in America that Rivian hopes to build upon. Tesla also utilizes over-the-air updates to keep its customers' cars running well. 

Unlike in other countries where direct sales exist alongside dealers, U.S. franchise laws at the state level allow dealerships to keep a tight hold on exactly how new cars are sold. Proponents of this system say third-party dealers can be better advocates for customers this way, but critics say it has stifled innovation, and dealers are widely considered to be bad at selling EVs in general.

That's because, in part, electric vehicles require less routine maintenance and have fewer wear items than their internal-combustion-powered counterparts. "Fifty percent of dealer profits come from service," Chen said. 

That claim checks out. According to National Automobile Dealers Association statistics cited by Edmunds, 49.6% of dealerships' gross profit comes from the service and parts department. A robust parts and service business is also one way dealerships can maintain profitability during economic downturns when customers buy fewer cars, per Automotive News

Rivian also won't have as many extra vehicles to put on display. "Ford keeps dozens and dozens of factories running in producing these millions of vehicles to send out and distribute in dealer lots as inventory amongst thousands of dealers," Chen said. Rivian can't keep that sort of inventory on hand, partially because they won't have the capacity. 

The company's lone plant in Normal, Illinois, is planned to have an output of about 250,000 vehicles per year, according to Chen. Because of this, Rivian plans to build its vehicles' to each customer's specs—not to what might sell well on a larger dealership lot. 

While low-volume specialty or high-end marques also face the same capacity issues, those dealerships also have more room to make up for it whenever someone needs an engine-out service or a pricey titanium exhaust. 

Rivian

Auto dealers are pushing back hard on Colorado's direct EV sales bill, as they usually do whenever there's an effort to erode to the numerous laws that shield existing dealers from competition. 

The Colorado Automobile Dealers Association claims that Rivian can already make direct sales in the state under the existing franchise laws, but that's where this gets sticky. The law allows direct sales if the manufacturer doesn't have any dealerships in Colorado and has been in continuous operation since Jan. 1, 2009, but the wording is unclear to Rivian whether both of those qualifications must be met, the Colorado Sun reports. 

It's also worth noting that the state's franchise laws aren't exactly generous for any automaker trying to sell directly to consumers. Tesla's lone store in Colorado was grandfathered in after 2010 changes to state law prohibited automakers from selling directly to consumers, notes the Colorado Sun

That law was passed to protect the state's dealerships following the General Motors bankruptcy, but since then, Tesla has been unable to open other new stores in Colorado. The company has skirted this de facto ban by opening up "galleries" to display its products, but that still isn't ideal for a state that's bisected by a mountain range. 

Opponents to the bill also claim that since Rivian partner Ford has to sell through dealerships, Rivian should have to follow suit. Ford invested $500 million in Rivian last year, and the two companies are collaborating on a new Lincoln electric vehicle to be sold through Lincoln's existing sales channels. However, Chen claims this argument is a mere distraction given that Ford doesn’t hold a controlling stake in Rivian.

Lawmakers in Colorado could vote on the bill as early as this week, Automotive News reports. An amendment was added last Friday that prevents established automakers from opening up direct sales outposts within an existing dealership's territory, but this did little to smooth things over with unhappy dealership groups. 

"We're not enamored with the amendment," Colorado Automobile Dealers Association President Tim Jackson told Automotive News. "You can't put lipstick on a pig. It's still a pig."

So far, Rivian has an automotive dealer license in Arizona and is seeking licenses in Massachusetts, California, Florida and Illinois. A Rivian lobbyist told Automotive News that these are all states where the company believes it will be able to sell its vehicles directly to customers. 

If a state doesn't allow Rivian to sell to customers directly, Chen said that Rivian will still be able to sell residents of that state vehicles through orders placed at stores in neighboring states, by phone or online. However, it's the company's last choice as an option, as the customer would either have to pick up their vehicle out-of-state or have it shipped to them through a third-party shipping company. Furthermore, customers would miss out on any electric vehicle sales incentives from their home state. 

"In many ways, this is about the free market, and allowing a company to choose the business model that best suits its business," Chen said. "Who knows better how Rivian can operate its business, us or some third-party franchise dealer?"