Keep in mind that when a car has a warranty or includes free service for X years, the dealership that performs that service is still paid. It's sort of like a medical insurance model, where you don't get a bill, but if your engine blows out, the manufacturer still pays the dealership for all of the labor (at a pre-negotiated rate) to do the service. Dealers love those kinds of arrangements because it trains people to get their service at the dealer, so even after the warranty is over, they keep coming back for overpriced maintenance and repairs.

When a dealer sells you a "lemon" that racks up thousands of dollars in warranty-covered repairs it's actually a bonanza for them.

The conflict of interest Musk is referring to is that dealers won't want to sell extremely maintenance free cars because their revenue on the back-end would be miniscule.