State legislatures across the country are trying to stall Tesla sales, putting the darling of the electric vehicle industry and poster child of an Obama administration environmental stimulus in a jam as it tries to rev up business.
Auto dealers are pushing back against the electric vehicle maker by invoking laws that prevent manufacturers from directly selling to consumers, which Tesla does.
Dealerships say the state franchising laws protect consumers because automakers cannot fix prices or skimp on honoring warranties. The latest move came in Michigan, the cradle of American auto manufacturing, where Republican Gov. Rick Snyder last month signed a bipartisan law backed by dealers and General Motors that he said clarified existing regulations prohibiting direct sales by manufacturers.
Tesla and its backers say the bans are an example of crony capitalism and an industry trying to stop a potentially disruptive newcomer. The company says Michigan’s law prevents Tesla from operating stores as “showcases,” which the California automaker has used to skirt franchising restrictions by allowing customers to view cars in stores but buy them online.
“This anti-competitive behavior mirrors similar tactics in New Jersey and Missouri, where dealers have resorted to backroom political maneuvers to shore up their monopolies,” Tesla said on its website. “The dark-of-night tactics highlight the dealers’ concerns that their arguments don’t stand up well to public scrutiny.”
Those are just a few of the states maneuvering against Tesla. Legislation restricting Tesla sales has been filed or passed in Arizona, Colorado, Georgia, Massachusetts, Minnesota, New Hampshire, New York, North Carolina, Ohio, Texas, Virginia, Washington, West Virginia and Pennsylvania.
Big automakers contend that Tesla should have to play by the same rules as them, even if it is a newer brand.
“You look at Tesla and you say, ‘Well they’re a startup, shouldn’t they get all they want?’ But if you look at the Tesla Model S, it is already the electric market segment leader in the state of Pennsylvania,” said Dan Gage, a spokesman with the Alliance of Automobile Manufacturers, whose 12 members include GM, Chrysler, Mercedes-Benz and Toyota. Gage noted the group is OK with giving Tesla a “limited” leg up because it’s a new company.
Gasoline-powered vehicles still dominate auto sales, with more than 11.5 million sold this year through September, according to the National Automobile Dealers Association. But electric vehicles such as Tesla are catching on, with more than 45,000 sold this year, up from 35,000 a year ago. Hybrid vehicles contributed another 360,000 sales, and plug-in hybrid vehicles accounted for an additional 44,000.
Beating back legislation has proved tiresome for Elon Musk, chief executive of the upstart company that soared to success on the heels of a $450 million federal loan guarantee that it repaid nine years early.
“If we’re seeing nonstop battles at the state level, rather than fight 20 different state battles, I’d rather fight one federal battle,” Musk told Automotive News in April 2013.
Tesla has stocked up on lobbyists in state capitals to fight the torrent of legislation targeting it, though the bills don’t mention the company by name. It also has resorted to the courts, where it has seen some success; courts in Massachusetts, Minnesota and New York have sided with Tesla and allowed it to open stores.
The battles are challenging franchising laws that exist in all 50 states.
Opponents of those laws argue that they prop up an archaic system that doesn’t fit in the modern Internet age where consumers can compare prices online.
While the dealership model might have made sense in the past to assist with financing arrangements and to ensure manufacturers didn’t swindle customers, the emergence of online auto markets such as Edmunds.com make the system obsolete, they contend.
And Tesla customers are hardly the type who need a dealership watching out for their financial interests, given the cars’ hefty sticker price, said Tyson Slocum, energy director with consumer watchdog group Public Citizen. The Model S, Tesla’s sedan, costs $71,000, though customers can get a federal tax credit to bring the price down to $63,570.
“The question is whether dealerships are inherently consumer protection statutes,” Slocum said. “Well, no. Not when they’re being used to stifle competition and prevent consumer choice.”
But auto dealers say Tesla is the one with monopolistic tendencies.
Consumers would get a raw deal by going through Tesla if the automaker were allowed to set prices on cradle-to-grave services, said Jim Appleton, president of the New Jersey Coalition of Auto Retailers. Appleton said Tesla would be welcomed if it played by the same set of rules.
“So far Tesla has chosen not to conform their business model to the law, but rather to hire lobbyists and lawyers in many state capitals — including New Jersey — in order to change the law,” he said.
Appleton said customers benefit from the manufacturer-dealership relationship because dealerships view honoring warranties and performing repairs as revenue rather than a cost.
“Tesla wants a system in which they have hegemony over the marketing, the retailing, the repairs and fuel. But the franchise system maximizes the choices for the consumer,” Appleton said.
But Matthew Mitchell, a senior research fellow with the libertarian Mercatus Center at George Mason University, called that argument bogus.
Studies have shown that customers in states with franchising laws paid 6 percent more for vehicles than states that lacked such restrictions, Mitchell said. Those studies were done in the 1980s, however, and Mitchell noted that duplicating them today would be impossible because every state now has franchising regulations.
And while auto dealers say the franchise system protects consumers, in some cases they have permitted Tesla to sell to consumers. Several recently passed state laws have allowed current stores to continue operating under a grandfather clause and, in some cases, allow some new stores to be built.
That alone is a tacit admission that the manufacturer-dealership structure is unnecessary, Mitchell said.
“This entire phenomenon is known as regulatory capture,” Mitchell said. “The grandfathering story is once the new firm is able to get past the regulatory velvet rope and get into the exclusive club, they just put the rope back behind them.”
