Automotive Direct Sales Model

1. Definition and Core Features

The automotive direct sales model refers to a retail channel approach where carmakers bypass traditional authorised dealer networks to sell vehicles and deliver aftersales services directly to end consumers. Its core hallmarks include standardised and transparent pricing, online ordering, and direct invoicing by the manufacturer—allowing buyers to configure specifications and place orders via the brand's official website or mobile app without having to survey and haggle for discounts across different dealerships.

In industry practice, "direct sales" and "direct operation" are frequently conflated, yet a clear operational hierarchy separates the two: direct sales refers to the overarching commercial model where manufacturers retail directly to consumers; direct operation operates at the execution level, where the manufacturer directly funds, manages, and operates its own retail outlets. While a directly-operated network is inherently direct sales, direct sales does not strictly require direct store ownership (such as fulfilling handovers through an agency model).

2. Main Formats and Channel Structures

Currently, China's automotive retail landscape is split into three main formats: the authorised dealership model accounts for roughly 50%, the agency model makes up about one-third, and the asset-heavy, directly-operated model represents less than 20%. Within the direct sales framework, two distinct variations exist:

Format	Representative Brands	Core Features
Asset-Heavy Direct Operation	Tesla, NIO	Carmakers establish their own brand experience centres, delivery hubs, and service networks, retaining full end-to-end operational control
Agency Model	XPENG, Xiaomi	Consumers transact directly with the carmaker with payments remitted straight to the principal; agents handle vehicle handovers and customer care, earning fixed service commissions rather than traditional retail margins

While the authorised dealership model still commands the lion's share of the market, it remains the prime breeding ground for intense price wars. Squeezed by wholesale sales targets and inventory holding costs, dealers are frequently forced to slash margins to push volume, triggering destructive price undercutting. In contrast, direct sales networks keep inventory risk with the manufacturer while strictly regulating retail prices, fostering a significantly more stable market order.

3. Key Drivers Behind the Direct Sales Model

The rapid rise of the direct sales model is driven by a convergence of several market dynamics:

Consumer Dynamics: Tech-savvy Gen Y and Gen Z buyers have become the core car-buying demographic. They demand transparent pricing and a seamless, standardised retail journey, finding traditional showroom price haggling misaligned with their buying habits.

Technological Advancements: With internet penetration reaching 79.7%, carmakers can directly engage millions of prospective buyers via mobile apps and digital platforms, drastically reducing their dependence on traditional showroom networks.

Market Evolution: Persistent industry pain points—such as opaque pricing and chaotic showroom discounts—have long plagued the traditional franchise model. Leading EV startups have successfully validated the viability of direct sales, while policy guidelines issued by eight government bodies, including the Ministry of Commerce in 2025, have explicitly endorsed the development of integrated online-to-offline sales and service systems.

4. Transition Challenges and Operational Roadblocks

Rolling out the direct sales model has encountered notable headwinds, exposing several practical hurdles:

Invoicing and Revenue Allocation: Many legacy carmakers claim to adopt direct sales on paper, yet still rely on dealerships to issue invoices, falling short of a true direct-to-consumer relationship. Invoicing directly impacts local tax revenues—dealers see their annual gross turnover shrink dramatically from the RM100,000,000 mark, diminishing their local economic contributions and sparking stiff resistance to structural reform.

The Persistent Issue of 4S Showroom "Tie-In Packages": Some direct-sale models still rely on 4S dealership outlets for vehicle handovers, where certain dealers exploit information asymmetry to force compulsory add-ons like insurance policies and registration processing fees. For instance, direct-sale EV buyers from a joint-venture brand were forced to purchase RM5,500 in insurance alongside a RM2,000 registration fee (which costs only RM130 in actual fees), diluting the promise of "price transparency" at the delivery stage.

Loss of Dealer Inventory Buffers: In the traditional setup, dealers serve as an essential "buffer" and "firewall" for carmakers—absorbing excess stock and cushioning the brand against market backlash. Under a direct sales model, carmakers must bear market volatility and direct consumer scrutiny themselves, demanding substantially higher risk-management capabilities.

5. The Evolving Role of Dealerships

The emergence of direct sales does not spell the demise of authorised dealerships; rather, it reshapes their functional value:

From "Sales-Driven" to "Service-Centric": Dealers focus on generating sales leads, hosting test drives, and facilitating vehicle handovers, shifting their earnings model from vehicle sales margins to service commissions.
From "Heavy Inventory Holding" to "Asset-Light Operations": Relieved of stock holding and floor-plan financing pressures, dealers operate on service commissions with significantly lower capital requirements.
From "Basic Servicing" to "Full Lifecycle Solutions": Dealerships are diversifying into automotive financing, leasing, trade-in valuations, and bespoke aftermarket customisation to create new profit avenues.

6. Future Outlook and Industry Trends

Industry consensus suggests that the direct sales model and authorised dealerships will coexist over the long haul, ultimately establishing a complementary ecosystem of "OEM direct sales + authorised agency networks". Developed overseas markets have led the charge, with European manufacturers aggressively pivoting from traditional franchise networks to the agency model. In China, however, the shift remains gradual due to OEMs' reluctance to forgo their dealer inventory buffer in the short term, coupled with dealer resistance to revenue shrinkage. Moving forward, the industry's competitive arena will transition from raw price wars to service quality and technological excellence, with channel transformation underpinned by how effectively carmakers invest in long-term customer lifecycle engagement.