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.
On Tuesday, the New Jersey Motor Vehicle Commission voted to approve a rule explicitly requiring all new motor vehicles to be sold through authorized franchisees. Tesla does not use franchisees, meaning the company will have to shutter its two Garden State stores by April 1.
Two other states, Arizona and Texas, ban selling cars directly to consumers. Colorado and Virginia have placed some limits on Tesla’s ability to sell directly to consumers.
Outside the Beltway, Tesla and auto dealers are fighting a raging battle. In several states, legislators are considering measures that would erect barriers between Tesla and its customers. The Ohio 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 (D) last year to advocate for a bill that would have prevented direct sales; a top auto dealer lobbyist told Capital New York that Cuomo promised the group he would sign the bill if it passed the legislature.
Georgia legislators are considering a bill that would end a $5,000 tax credit for electric cars, which would affect Tesla customers. But the same state representative who introduced that bill also proposed legislation that would allow Tesla to sell up to 1,500 vehicles in Georgia every year, higher than the 150 cars it is currently allowed to sell 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 rule-making caught the company off guard. In a blog entry posted Tuesday, the California-based company blasted New Jersey Gov. Chris Christie’s (R) administration for expediting the rule-making process, rather than allowing the legislature to decide how to proceed. The company said it had been informed the Motor Vehicle Commission would vote only a day before the meeting took place.
“Until [Monday], we were under the impression that all parties were working in good faith,” the company wrote on its Web site. “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 shouldn’t 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,” Kevin Roberts, a Christie spokesman, said in an e-mail. “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 local franchises, rules the auto dealers say 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 competitoon 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.
“It’s up to each state to determine what regulations to adopt for its local marketplace. It’s easy to see the rationale for state laws that foster a well-capitalized, independent dealer network,” a spokesman for the National Automobile Dealers Association said in an email. “Consumers are better served by multiple retailers competing for their business.”
Tesla disagrees. The company says marketing directly to consumers and cutting out the dealer middleman helps both reduce costs and introduce the electric car to an unfamiliar public.
“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.