Automotive

Opinion: What do New Jersey, Texas and Arizona have against Tesla?

Opinion: What do New Jersey, T...
New Jersey is the latest state in the USA to outlaw sales of Tesla
New Jersey is the latest state in the USA to outlaw sales of Tesla
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New Jersey is the latest state in the USA to outlaw sales of Tesla
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New Jersey is the latest state in the USA to outlaw sales of Tesla
Tesla's store employees typically spend two to three hours with potential customers explaining details around owning an electric vehicle, and follow-up visits
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Tesla's store employees typically spend two to three hours with potential customers explaining details around owning an electric vehicle, and follow-up visits
Tesla's Model S is consistently ranked as one of the best cars on the road making the reasoning behind New Jersey's dealership refusal a mystery
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Tesla's Model S is consistently ranked as one of the best cars on the road making the reasoning behind New Jersey's dealership refusal a mystery
Tesla dealerships in Texas can show the car and provide information but can't discuss pricing, lease options, test drives or provide out of state dealer information
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Tesla dealerships in Texas can show the car and provide information but can't discuss pricing, lease options, test drives or provide out of state dealer information
Tesla is looking for a home to set up a Gigafactory which would allow it to produce lithium-ion batteries on a massive scale
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Tesla is looking for a home to set up a Gigafactory which would allow it to produce lithium-ion batteries on a massive scale
Over $86.8 million of dealership monies has been spent on state election races across the U.S. since 2003 with $57 million funneled into federal campaigns making for possible biased political alliances
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Over $86.8 million of dealership monies has been spent on state election races across the U.S. since 2003 with $57 million funneled into federal campaigns making for possible biased political alliances
Elon Musk will testify in person at a hearing into the issue at the Texas State Capitol building on April 9
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Elon Musk will testify in person at a hearing into the issue at the Texas State Capitol building on April 9
Tesla is a home-grown success story whose stocks have risen 500% in the past 12 months
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Tesla is a home-grown success story whose stocks have risen 500% in the past 12 months
New Jersey isn’t the first state to snub Tesla, Texas and Arizona, have both implemented laws making it illegal for Tesla to sell cars in their states
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New Jersey isn’t the first state to snub Tesla, Texas and Arizona, have both implemented laws making it illegal for Tesla to sell cars in their states

Electric car manufacturer Tesla has been in discussions for some time with the New Jersey Government and Motor Vehicle Commission about the implementation of its direct dealership model. This week the Administration, following suit with Texas and Arizona, moved to block Tesla from selling cars in its own stores. So what's all the fuss about?

Tesla called the move "an affront to the very concept of a free market" in a blog post on Monday, saying that the proposal "would, among other things, require all new motor vehicles to be sold through middlemen and block Tesla’s direct sales model." The EV manufacturer argues that the Administration and New Jersey Motor Vehicle Commission are "going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers."

Kevin Roberts, a spokesman for the office of NJ governor Chris Christie responded by saying that the "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."

So in a nutshell, Tesla wants to push forward with its direct sales model, while the government wants to protect the traditional model where cars are sold through franchised dealerships.

So what is it about Tesla’s unconventional model that is such threat to the American way? Well for one thing, it’s different. For some the idea of change seems right up there on par with alien invasions and communism. If it ain’t broke, don’t fix it.

The Tesla dealership model is agile and small. Typically no bigger than a good sized shoe store the Tesla shops can be found in fashion districts, shopping centers or as standalone stores. The dealerships or boutique shops, in keeping with Tesla’s contemporary approach are designed with highly stylized kiosks, color palettes and swatches, the occasional Model S, high gloss finishes and non-commission sales people. The idea according to Elon Musk is to allow consumers to be properly educated, without the typical high pressure sales tactics predominantly associated with traditional dealerships. So that’s the big scary monster that will destroy America and has auto dealers running for their shotguns and bear spray?

Tesla's store employees typically spend two to three hours with potential customers explaining details around owning an electric vehicle, and follow-up visits
Tesla's store employees typically spend two to three hours with potential customers explaining details around owning an electric vehicle, and follow-up visits

Tesla argues that its specialized stores are not only a way to sell new cars but to also promote new technology. Again quoting Tesla's blog post from earlier this week: "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, which is central to our mission to accelerate the shift to sustainable transportation, a new paradigm in automotive technology."

Unfortunately for Tesla, New Jersey isn’t the first state to snub the company’s unique dealership concept. Texas and Arizona have both implemented laws making it illegal for Tesla to sell cars in their states. Tesla says that under the current Texas Occupations Code, it is" unable to sell its vehicles directly to the public because it has no franchised dealer relationships in Texas, or in the other states.”

Tesla surprisingly still has two dealerships in Texas; one in Houston and one in Austin. While this may sound like it managed a workaround to the legal dilemma, Tesla employees at these galleries are “prevented from discussing pricing, lease options, or offering test drives.” The in-shop kiosks have also had all pricing removed. But what if a clever, entrepreneurial employee just happens to mention a dealership in California that can help with pricing, leasing, etc. questions? Texas lawmakers have already thought of that. No, employees cannot provide assistance to interested consumers. The same restrictions will apply in New Jersey.

Over $86.8 million of dealership monies has been spent on state election races across the U.S. since 2003 with $57 million funneled into federal campaigns making for possible biased political alliances
Over $86.8 million of dealership monies has been spent on state election races across the U.S. since 2003 with $57 million funneled into federal campaigns making for possible biased political alliances

Rhett Ricart, President of Ricart Automotive in Columbus and a plaintiff in a lawsuit filed against Tesla in Ohio, provides an insight into the attitudes Tesla is up against in an interview with Bloomberg : “I don’t want ‘Hydrogen Motors’ to come along five years from now or some other Mickey Mouse thing to come along and then just jack up the industry. It’s not right.” Ricart does give Tesla a back-handed compliment by saying, “they build a great car,” however, he goes on to add that “the reason these laws are in these states are to protect the consumers.”

"Consumer protection" seems to be a stick used by both sides in this debate, but it's hard to see how clinging to an 80 year old business model that only adds costs to the finished product is benefiting consumers.

There is of course, an elephant in the room in all of this. “In 2012 there were an estimated 17,600 dealers of new cars and trucks in the US," according to the Bloomberg report cited above. "From that group, over US$676 billion of sales were generated, accounting for almost 15 percent of all US retail activity.” To say the automotive industry and its dealerships are an integral part of the US economy is to state the obvious. However, "over $86.8 million of dealership monies was spent on state election races across the US since 2003 with $57 million funneled into federal campaigns.” Tesla, the new kid on the block, has only only managed to throw roughly $500,000 towards state and federal politics. There's also the issue of the amount of tax dollars each dealership brings to state coffers. A figure hard to ignore on either side of the aisle.

So is this all just a bit of good ol' fashioned fear mongering on the part of the establishment? It wouldn't be the first time. In the 1970s and 80s when foreign entities started to enter US markets, anti-American rumblings became common place and driving a foreign car like a Toyota or a Datsun (Nissan) was frowned upon in some quarters. But Tesla isn’t a foreign entity, it’s a home-grown success story that employs 4,000 people and whose stocks have risen 500 percent in the past 12 months. Its Model S has consistently been named as one of the best overall cars in recent memory – of gas or electric persuasion. My personal experience in driving the Model S has not only changed my opinion of what an electric car can be, but further reinforced the argument that technology of this quality is the way of the future. Maybe not tomorrow, or next year, but slowly the shift from that of a gas-only, my F150 is bigger than yours mentality will happen. It seems to me that this whole is dust-up is a case of not seeing the hood ornament for the trees.

What next? Tesla being Tesla, and Elon Musk being Elon Musk, are not taking this lying down drinking flat mojitos. The next salvo will be fired when Musk testifies in person at a hearing into the issue at the Texas State Capitol building on April 9.

42 comments
VirtualGathis
Wow. Politicians are not even trying to tell reasonable lies anymore. "the reason these laws are in these states are to protect the consumers.” is such a blatant lie it is ridiculous. These laws have nothing to do with consumer protection. They are being enacted to preserve the dysfunctional dealership model. Which is to say they are acting to protect the dealerships existence and their practices of adding a 50% or more markup to the vehicle. I’ve never understood the middleman model being protected so fiercely other than outright bribery and lobbying. The internet is allowing more direct to consumer sales in every class of goods. A similar issue happened in my town when Sam’s Club stated selling gasoline. They were able to sell gasoline for about 30% less than most fuel vendors. So the other fuel vendors rather than even try to compete simply lobbied the lawmakers into putting a law in place that made it illegal to sell fuel for more than 10% less than the average price in the area. So much for free market anything.
flink
They harp on consumer protection, but the real reason is that they are getting contributions from PACs and dealers, and most likely some under-the-table cash or cars to keep things the way they are. Any time a politician says "it's for your own good," what they really mean is they can't afford to change anything because the money is too good. Tesla selling directly to consumers threatens the established players in the game and pressure from those players applied to politicians is what prevents Tesla from selling. There are no other reasons.
MontanaPhil
Another factor is the property tax that a 5 acre dealership generates. Money, money , money for the local municipalities
Skipjack
I wonder how long these so called "representatives" of the people can keep up their lies and deception while selling out to the highest bidder (in this case the car dealer lobby). No honor among these people!
tampa florida
it's embarrassing to be an american today. We are the leader of world corruption
dsiple
The hell with TX, AZ and NJ. Just go where people want to buy them. I'm sure there's not a Ferrarri or Maserati dealership in every state. People who want a Tesla will get them elsewhere.
WackiMacki
I would open a showroom on the border of each state and let the revenue go to the neighbor. As for Christie, he'll be gone fairly soon anyway. :)
hdm
Friends deep in Ford eluded to the mess that occured when GM was bought by the US government... how the chopping block came out for the dealers... and the sword dropped swiftly. Before the bailout, GM wanted to get rid of many dealers and couldn't... but once owned by the 'guv'..they had carte blanche to do whatever they wanted. The dealer network is like defence networks... all of them contribute to a politick and someone getting elected. I probably messed this up royally... or maybe not.
THY
Tesla could open Franchises keeping 99.999% ownership and providing a 0.001% commission (~$1.00 USD per car); there are no legal limits on these percentages. Slap in the face to corrupt politicians. I believe the only problem in this planet is corruption. Eradicate it like a plague, and all current problems will solve with time.
yrag
New Jersey, Texas and Arizona all have Republican Governors. I thought Republicans claim to be for unimpeded free enterprise. Unless Elon Musk has been espousing a Constitutional amendment specifically designed to allow President Obama to run for a third term, I think these folks have some 'splainin' to do!