Technology roadblock? Tesla runs into state rules

Reid Wilson The Washington Post. Tesla, the high-end electric car manufacturer that sells its vehicles directly to consumers rather than through authorized dealerships, is running into roadblocks in several states that say the company must follow a traditional auto franchise model. The New Jersey Motor Vehicle Commission approved a rule last week explicitly requiring that all new motor vehicles be sold through authorized franchisees. Tesla does not use franchises, meaning the company will have to close its two Garden State stores by April 1.

Two other states — Arizona and Texas — ban the selling of cars directly to consumers. Colorado and Virginia have also placed limits on Tesla’s ability to sell directly to consumers, and several other states are considering following suit. In Texas, Tesla has “Galleries” promoting its cars, but it’s banded from showing pricing information or having test drives. In Ohio, the state Senate is considering a bill that would prevent an auto manufacturer from owning a dealership. In New York, auto dealers met with Gov. Andrew Cuomo last year to advocate for a bill that would have prevented direct sales. Georgia legislators are also considering a bill that would end a $5,000 tax credit for electric cars, which would hurt Tesla customers. But the same state representative who introduced that bill also proposed legislation that would allow Tesla to sell as many as 1,500 vehicles in Georgia every year. The company is currently allowed to sell 150 cars in the state annually under an exemption from auto dealer regulations.

In Minnesota, Tesla beat back legislation in both the state House and Senate that would have banned direct sales in 2013. The New Jersey decision caught California-based Tesla off guard. In a blog entry posted after the Tuesday vote, the company blasted the administration of New Jersey Gov. Chris Christie for speeding up the rule-making process rather than allowing the legislature to decide how to proceed. The company said it had been informed that the Motor Vehicle Commission would vote just one day before the meeting took place. “We were under the impression that all parties were working in good faith,” the company wrote on its website. “Unfortunately, Monday we received news that Governor Christie’s administration has gone back on its word to delay a proposed anti-Tesla regulation so that the matter could be handled through a fair process in the Legislature. The Administration has decided to go outside the legislative process by expediting a rule proposal that would completely change the law in New Jersey.” Christie’s office said Tesla should not have been surprised and that the onus was always on the auto manufacturer to get the legislature to change the rules.

“Since Tesla first began operating in New Jersey one year ago, it was made clear that the company would need to engage the legislature on a bill to establish their new direct-sales operations under New Jersey law,” Christie spokesman Kevin Roberts, said in an email. “This administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation, and Tesla has been aware of this position since the beginning.” Auto dealers stand to lose out if Tesla’s direct-sales model becomes more prevalent. Most states require car dealers to contract with local franchises. Auto dealers say the approach helps create competition and protect consumers. Allowing Tesla to play by different rules “will lead to price controls or inflexible pricing. Dealers compete every day for price,” said Jim Appleton, president of the New Jersey Coalition of Automotive Retailers. “What is it about Tesla that makes them immune from the concerns of zero price competition and a monopoly market, or not fully and fairly administering safety and recall services?” In many states, auto dealers are powerful political interests, contributing hundreds of thousands if not millions of dollars to state and federal politicians. In the 2012 election cycle, auto dealers contributed more than $16 million to federal candidates and political action committees, according to data compiled by the Center for Responsive Politics. The industry spent at least $3.6 million lobbying Congress in 2013.

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In defense of its sales policy, Tesla says marketing directly to consumers and cutting out the dealer middleman helps both reduce costs and introduce the electric car to a public that is not familiar with it. “We strongly believe it is vital to introduce our own vehicles to the market because electric cars are still a relatively new technology. This model is not just a matter of selling more cars and providing optimum consumer choice for Americans, but it is also about educating consumers about the benefits of going electric,” the company wrote on its blog. Tesla has some leverage, at least in Southwestern states. The company said last month it is evaluating sites in Arizona, Nevada, New Mexico and Texas for a multibillion-dollar battery factory that it estimates will eventually employ 6,500 workers. If Arizona and Texas want the factory, the company may be able to get them to rethink bans on direct sales.