RICHMOND — Electric carmaker Tesla on Wednesday won permission to open a second retail store in Virginia, a decision that the state’s auto dealers are expected to contest in court.
Richard D. Holcomb, the Department of Motor Vehicles commissioner, found that Tesla should be allowed to open a store in the Richmond suburbs because no independent auto dealers were prepared to sell the cars.
“After careful review of the entire record, I find that there is no dealer independent of Tesla in the community or trade area of Richmond, Virginia, to own and operate a Tesla franchise in a manner consistent with the public interest,” Holcomb wrote in a nine-page decision.
Holcomb’s position was a reversal from three years ago, when he came down against the carmaker as it pursued its first Virginia store. Tesla filed a lawsuit over that decision, ultimately winning the right to open its Tysons Corner showroom under a settlement brokered by then-state Attorney General Ken Cuccinelli II (R).
“Tesla applauds the Commissioner’s decision to allow us to open our new store and service center in Richmond, Virginia,” Diarmuid O’Connell, Tesla’s vice president of business development, said via email. “This decision will allow Richmond-area consumers to learn about and purchase their Tesla vehicles in closer proximity to their home. We intend to swiftly begin construction.”
Officials with the Virginia Automobile Dealers Association did not immediately respond to requests for comment. Like Tesla, they have indicated a willingness to go to court over the issue.
Car dealers in Virginia and across the country see Tesla’s direct-to-consumer sales model as a threat to the franchise system, which they say protects consumers as well as their own business interests.
In Virginia, as in most states, it is generally illegal for manufacturers to sell cars directly to consumers, partly to prevent carmakers from undercutting their franchisees. But state law allows manufacturers to sell directly to customers if no one is available to serve as a dealer in a certain area.
No dealers expressed interest when Tesla sought its first Virginia store in 2013. But this time around, 11 dealers sent the company letters expressing interest. Tesla dismissed those as brief form letters orchestrated by the dealer’s association, not serious expressions of interest. Five dealers took the time to testify at hearings on the issue. But Holcomb found none of them had created business plans for such a dealership or indicated that they were capable of performing service on the all-electric vehicles.
The auto dealers had contended that they could not come up with business plans because Tesla refused to provide necessary financial information.
Tesla has argued that conventional car dealers, who are used to quick sales, price markups and profitable maintenance work, are not equipped to sell its cars, which take longer to sell because they involve unfamiliar technology. Tesla offers its vehicles at set prices whether they are purchased at a retail store or through the company’s website, which the company says leaves no room for markup. And with few moving parts, the cars offer little opportunity to profit from service — an important source of revenue for many traditional dealers.
Tesla, which is licensed to sell cars in 23 states and the District, has stores in Annapolis and Bethesda and on K Street in the District. Tesla also operates a “gallery” in McLean, where potential customers can learn about the vehicles. But staff there cannot discuss sales or allow customers to test-drive a car.