Tesla (NASDAQ: TSLA) Fights State Laws

Brian Hicks

Written By Brian Hicks

Posted May 22, 2013

Tesla is bucking the status quo and making enemies in the process.

Tesla Motors Inc. (NASDAQ: TSLA) is fighting with states around the country to sell cars without having to set up third party dealerships.

The company’s sales model forgoes the traditional system, offering its vehicles directly at showrooms or online at a fixed price, with no room for haggling.

ModelSCar dealers in New York and Massachusetts tried to block Tesla’s efforts, but their objections were dismissed. Dealers in New York also attempted to shut down Tesla service stations and stores through the courts, NPR reports.

Various interest groups, including the National Automobile Dealers Association and its state chapters, have qualms with Tesla for its in-house selling model.

Another anti-Tesla law in Minnesota did not make it through the legislative process, but bill supporters will bring up the issue next year.

And a bill is currently circulating in the North Carolina state legislature that would entirely forbid customers from purchasing Tesla cars online. Republican State Senator Tom Apodaca is a sponsor of the bill.

The North Carolina Automobile Dealers Association is fervently behind the legislation.

This goes far beyond a Texas law, which only prevents the company from selling the Model S in showrooms. Customers would have to make special shipping arrangements to have their cars delivered, but they can still order online.

Tesla is also fighting with Texas to get that law changed as well. Bill Walters of the Texas Automobile Dealers Association is a primary supporter of the law.

Critics of the restrictions accuse state governments of market protectionism and closing out competition.

Supports of these laws want Tesla to abide by the same rules as everyone else, and they are concerned that Tesla’s departing sales technique would encourage other manufacturers to follow suit — setting a precedent and preventing franchise dealers from competing against manufacturers.

In a conventional automobile market, franchise dealerships sell cars on the manufacturer’s behalf, with profits negotiated between the two parties.

It is worth noting Tesla is not ruling out dealerships in the future, but as of now company heads believe the company would perform better by retaining control of prices, do a better job explaining car benefits, and would offer better customer service to consumers.

It has been tough ride for Tesla, but the Model S has gained high praise from critics – making Motor Trend’s 2013 car of the year.

The company also outsold the hybrid vehicle Chevy Volt by GM (NYSE: GM) and the fully electric Nissan Leaf in sales figures.

And Tesla recently made its first quarter profit in ten years and exceeded expectations for Model S sales figures.

With so much momentum in Tesla’s favor, the backlash is not surprising. CEO Elon Musk managed to carve out a unique niche within the automotive market and blew away skeptics who believed electric vehicles could not compete against fossil fuel engines.

Tesla Moving Forward

There is no grand conspiracy on Tesla’s part to undermine dealerships, and the company’s selling model will have no effect on the average car salesman.

Tesla vehicles are a different type of animal, and the very existence of EVs challenges the entire automobile industry, going all the way back to Henry Ford’s Model T.

That is just the nature of a competitive free market system.

Ultimately, the consumer will decide which kind of car is better.

The outrage among dealership associations has more to do with the fact that Tesla has introduced an automobile unlike any other seen out there, and supporters of the status quo seek to knock Tesla down a notch.

The Model S is considered an American car of luxury, and the price is not as high as what you would find among other high-end hybrids and EVs. Base price for a Model S is $62,400, according to the official website.

Tesla also managed to usher the EV market into the spotlight by proving that EVs can be attractive to the eye, have a high mileage per charge, and be economical to consumers tired of gasoline costs.

There had been little gripe about Tesla’s selling policies until the company began competing with automotive bigwigs.

In the past, North Carolinians have been able to buy Tesla vehicles with little problem, and purchasing a Tesla online is still legal in all states.

Let’s strip away the bark for a moment and call it for what it is. The North Carolina Dealers Association is a special interest group looking to drive out Tesla’s competition.

True principles of a free market system allow any entity to compete, whether it is a manufacturer or a dealership.

Governments should not be favoring one business sector over another.

These state branch associations are using governments at the state level to restrict consumer choice and interfere with the internal operations of a company.

The Tesla Model S is not just another new car but a trend-setter in its own right. The company is doing everything possible to reassure potential customers that this brand of car has long-lasting power, and a good way to make an impression is to have a sales system in which customers can deal directly with the company.

Model S buyers are in good hands with the company’s guaranteed battery program. There is also a program that allows customers to rent another Model S in the advent of long-term repairs, and if the customer is happier with the rented version, he or she has the option of buying it, simply paying the difference between the two vehicles.

Few other dealerships, or other manufacturers for that matter, could secure such a guarantee.

Customers also stand a higher chance of leasing a Tesla vehicle for no money down, thanks to the company’s efforts in working with Wells Fargo (NYSE: WFC) and US Bank.

Payments on a Model S can amount to $580 per month or $315 for business use.

The price of the Model S may be more expensive than your average car, but compared to other high luxury green cars that can run up to $115K, Tesla prices are fairly competitive.

And what must also be considered is that Tesla cars are fairly new on the market, and we all know that any new product will depreciate in value over time.

The Model S and future products by the company have the potential to become mainstream American cars, level with GM or Ford (NYSE: F) vehicles, when prices come down for the public at large.

Another reason Tesla customers want to have good relationship with the company is because of Tesla’s mechanics.

If you had a Tesla vehicle, would you want to take it to a mechanic that knew little of its internal functions? It will be a long while before mainline mechanics become fully knowledgeable on how to fix non-gasoline engines.

With such an innovative product on the market, Musk is quite justified in wanting to keep his cars within the family, so to speak.

Your average salesman simply would not take the time and effort to fully absorb Tesla’s benefits and internal components as a Tesla employee would – not because most salesmen do not care for Tesla vehicles, but because EVs are a new breed, and many salesmen may stick with the familiarity of selling conventional cars.

And a Tesla-based franchise dealership is not something the company is focused on right now.

Perhaps one day it will, and even if it chooses to retain its in-house sales model, then that is something for something for shareholders and Elon Musk to decide – not an outside party.

EV Investors

Tesla adds a new angle to the automobile market and challenges many people’s perceptions of alternative-powered vehicles. What we’re seeing right now is not just a new vehicle catching waves but a brand that can spawn future generations of highly-efficient and eye-catching EVs – cars that can compete with industry heavyweights.

EV investors should get excited because Tesla is breaking barriers.

The Tesla Model S is not the first EV on the market, but it is the first one that can appeal to customers who normally don’t have an affinity toward electric cars.


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