Rivian vs. dealers: A fight for the future of car buying
Rivian CEO RJ Scaringe criticizes dealership laws as outdated and anti-consumer, calling for reforms to allow direct EV sales and empower buyers.
Rivian CEO RJ Scaringe isn’t mincing words about dealer franchise laws in the United States. In a recent roundtable discussion, Scaringe said these laws are "as close as you can get to corruption."
Designed to protect traditional car dealerships, these state-by-state regulations restrict manufacturers like Rivian and Tesla from selling cars directly to consumers. Scaringe claims these rules stifle competition and limit consumer choice, benefiting only entrenched dealership networks.
“I think you essentially have, like, lots of dealers have paid for laws that make it really hard for us to interact directly with the consumer,” Scaringe said, accusing dealer lobbies of wielding outsized influence over state legislatures.
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A patchwork of restrictions harms convenience
The complexity of dealer franchise laws creates significant challenges for automakers operating outside the traditional dealership model. For instance, Tesla cannot sell cars directly in Texas and must rely on online orders with deliveries made at service centers. In Washington, Rivian employees are prohibited from discussing pricing or taking orders in person, leaving consumers in the dark during showroom visits.
These laws were originally crafted to prevent manufacturers from undercutting their franchised dealers. However, for brands like Rivian and Tesla, which never partnered with dealerships, the rules act as barriers to entry rather than safeguards for competition. In states like Louisiana, it’s outright illegal to purchase a Tesla or Rivian without going through a dealer—despite the fact that these brands have no dealers to compete with.
Scaringe said that these restrictions only protect traditional dealerships from competing with new, innovative sales models, at the cost of consumer convenience.
Lobbying: A barrier to change
Dealer lobbyists are at the heart of why these laws remain so restrictive. By leveraging political donations and close relationships with state lawmakers, these organizations have built a web of protections that lockout direct-to-consumer brands.
This influence could pose challenges for other automakers looking to adopt direct-to-consumer strategies. Volkswagen’s upcoming Scout Motors brand plans to use a similar sales model, but dealers in several states have already pledged to fight the move in court.
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The service dilemma
Beyond sales, service remains a critical pain point for direct-to-consumer automakers like Rivian. Scaringe acknowledged that the company’s service infrastructure hasn’t kept pace with vehicle sales in certain markets, leading to backlogs and consumer frustration. While Rivian handles over half of its service appointments via mobile technicians, the company still faces logistical challenges in scaling up its service network.
“You don't need 5,000 retail locations in the United States to sell three or four million cars a year,” Scaringe explained. “But you do need a lot of service infrastructure.”
Tesla, which pioneered the direct-to-consumer model, offers a glimpse into how this might be achieved. By emphasizing mobile service and diagnostic technology, Tesla has minimized its reliance on physical service centers. Rivian aims to follow a similar path, though Scaringe noted the company must accelerate its service buildout to meet consumer expectations.
Dealers see light in a potential partnership with Europe
While U.S. regulations make partnering with established service networks challenging, Scaringe sees potential for collaboration in Europe. Rivian is exploring whether to partner with a company to expand service options overseas. One possible candidate is Volkswagen, who recently formed a partnership with Rivian. However, Scaringe emphasized that Rivian has no intention of using VW’s sales network, even if service partnerships remain on the table.
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For now, Rivian remains committed to navigating the complexities of the U.S. market independently, even as the company pushes for reform to dealer franchise laws. “Long-term, we’re going to build a robust service infrastructure,” Scaringe said. “But it’s clear that the system in the U.S. needs to change.”
A $6.6 billion game-changer
Amid these hurdles, Rivian recently secured a $6.6 billion loan from the U.S. Department of Energy (DOE) to reignite plans for a manufacturing facility in Georgia. The factory, initially announced in 2021 but paused earlier this year due to financial constraints, is central to Rivian’s strategy to scale production and introduce mass-market EVs.
The Georgia facility will focus on producing Rivian’s upcoming R2 and R3 SUVs, which are designed to compete in the more affordable segment of the EV market. Production is slated to begin in 2028, with an initial capacity of 200,000 vehicles annually.
“This loan would enable Rivian to more aggressively scale our U.S. manufacturing footprint for our competitively priced R2 and R3 vehicles that emphasize both capability and affordability,” Scaringe said.
The federal loan highlights the broader push to bolster domestic EV manufacturing, a key component of the Biden administration’s clean energy agenda. But, ramped-up production could all be for nothing if dealership-favorable laws handicap direct-to-consumer models like Rivian’s.
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Final thoughts
Scaringe’s criticism highlights a growing tension between legacy dealership models and the direct-to-consumer approach embraced by many EV startups. As states continue to uphold restrictive franchise laws, companies like Rivian face significant hurdles in selling and servicing their vehicles.
The debate over dealer franchise laws is likely to intensify as more automakers adopt direct-to-consumer strategies. Whether this will lead to legislative reform remains uncertain. For now, Scaringe’s comments signal that Rivian—and the broader EV industry—will continue to push for a system that prioritizes innovation, competition, and consumer choice over entrenched interests.
