Tesla Testifies In Texas, Takes On State's Auto Dealers Over Stores

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Tesla owners & supporters gather in Statehouse in Austin to support company [photo: John Griswell]

Tesla owners & supporters gather in Statehouse in Austin to support company [photo: John Griswell]

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Texas is tough, and Texas car dealers are no exception.

But electric-car startup Tesla Motors [NSDQ:TSLA], in the person of its CEO Elon Musk, testified yesterday at a hearing in the Texas legislature on a bill that would allow it to sell its cars directly to Texas buyers.

That's presently illegal in Texas, where legislation long backed by state dealer groups requires all new cars to be sold by an independently-owned third party.

That is to say, a car dealer.

No touching the new car

There are now two Tesla Stores in the state, in Austin and in Houston, among the 16 stores in 12 states run by the company.

But under the current law, the Tesla employees may not offer rides or drives in a Model S, mention any kind of pricing information, or even point customers to where that information is available--on the company's website.

Because Tesla has no franchised dealers, any Texan who wants to buy a Tesla Model S has to do so through a Tesla Store in some other state.

The truck that delivers the cars to their Texas homes may not bear Tesla markings, and buyers must even unwrap their cars themselves, because Tesla employees may not say anything or touch any car related to sales activity.

Narrow exception

The bill being debated is narrowly crafted and, at the moment, would benefit only Tesla.

It applies solely to carmakers who sell "only all electric-powered or all battery-powered motor vehicles."

Those makers must have had locations open in the state before March 1, and have no franchised dealers.

Strong opposition by dealers

You can read the entire bill--it's remarkably short--here.

Tesla owners & supporters gather in Statehouse in Austin to support company [photo: John Griswell]

Tesla owners & supporters gather in Statehouse in Austin to support company [photo: John Griswell]

Enlarge Photo

(For the record, the two versions are Senate Bill 1659, sponsored by Senator Craig Estes, a Wichita Falls Republican, and House Bill 3351, sponsored by Representative Eddie Rodriguez, an Austin Democrat.)

While the bill's supporters include Texas Governor Rick Perry, a Republican, the Texas Automobile Dealers' Association has strongly and forcefully opposed the bill.

In various comments over the past several weeks, the association has predicted that the bill would not pass.

It also calls Tesla's desire for an exemption "arrogant," and consistently claims that the existing traditional franchised-dealership model offers the best way to sell and service cars and by far the most protection for consumers.

Other auto dealers' associations have done the same in their states.

In Colorado, the state dealer association got the state's law changed in early 2010 to forbid any direct sales of any car at all after Tesla opened a single store there.

Fear of unfair competition

Tesla owners & supporters gather in Statehouse in Austin to support company [photo: John Griswell]

Tesla owners & supporters gather in Statehouse in Austin to support company [photo: John Griswell]

Enlarge Photo

Like many such laws, the Texas rule grew out of a post-World War II fear that automakers would set up their own dealerships and give them preferential treatment to the franchised dealers.

Most states have some variation of a law that says automakers cannot open wholly-owned dealers that compete with franchises selling the same brand.

Tesla Motors, of course, has no franchised dealers.

And it also seems to have friends among Texas consumers and, more importantly, at least some state legislators.

More buyers in Texas

Yesterday, CEO Musk testified after 5 pm on Tuesday, several hours into the hearing of the House Business and Industry Committee held in the statehouse in Austin.

At a news conference yesterday, Musk said the current law is hurting Tesla's business in the state.

Tesla owners & supporters gather in Statehouse in Austin to support company [photo: John Griswell]

Tesla owners & supporters gather in Statehouse in Austin to support company [photo: John Griswell]

Enlarge Photo

Today, 6 percent of Tesla Model S luxury sport sedan buyers come from Texas, he said.

But the company feels that number could be 15 to 20 percent if buyers could purchase online directly from the company as they do now in other states, including California, which is Tesla's largest market.

"What we’re asking for from the Texas Legislature is really simple," Musk said. "Let us sell our cars directly to the people of Texas [as] we’re able to do in most of the country."

Local Model S owners lined up outside the Statehouse, with their all-electric sport sedans parked in a neat row at the curb, to attend the hearing and show their support for Tesla.

'Get our ass kicked'?

At his press conference, Musk acknowledged the great political power of state auto dealers.

“Everyone warned us", he said, telling the CEO that "if you are going to do this, you’re going to get your ass kicked."

The battle, Musk concluded, has to be fought anyway: “I guess there’s a good chance we’ll get our ass kicked. But we’ll try.”

No love lost

There's no love lost between Musk and auto dealers in general.

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Comments (10)
  1. Tesla is actually arguing in favor of a monopolistic market - controlled by the auto manufacturer, which makes price fixing very easy to do. Years ago golf club manufacturers imposed price fixing and restricted distribution of their products to pro shops and other outlets designed to extract the highest prices. That business was outlawed under anti-trust statutes. Of course, it's unlikely that friendly Pres Obama and his lapdog Justice Dept would ever enforce anti-trust laws against their friends. It's obvious that the Justice Dept, Energy Dept and all the others need to be be made independent of political control by the White House or Congress. This is one very stupid country.

  2. Well, I'm afraid I must disagree with everything in your post except the last sentence. I agree with 49% of that one.

  3. whoops --checked thumb down but meant thumbs up!

  4. I know nothing about golf clubs (spawn of the Devil) but it seems to me that if your state did not have this law and you felt you were were being manipulated by the manufacturer of your car that you wouldn't buy one of the same make again. Last time I looked there were plenty of alternatives in the car market. There is even already a few choices in the EV market. So why do car owners need this special protection? It seems to me as an outsider that this bill is a real test of just how much the politicians of Texas are in the pocket of the auto makers... As for Ms Phillips' comments about Mr Musk, I'd trust him over a car dealer any day.

  5. Haven't heard much about all electric vehicles and towing. The idea of an all electric pickup with decent towing ability is pretty interesting. I wonder what the practical towing limit for a Model X would be? (with AWD)...that's the one that is of most interest to me.

  6. There shouldn't be an exception to this law - it should be scrapped entirely. Any law that restricts liberty needs to be examined and most likely tossed. This law protects franchise owners at the expense of consumers and car companies. If franchise dealers don't want competition from their car company, they can negotiate a contract with that company and leave the state out of it.

  7. Shame on you Texas! Stamping out entrepreneurial new businesses. You are better than that.

  8. The real problem here is that the salesmen working at dealerships can't be relied upon to sell electric cars, which because of their "new to most consumers" technology require more knowledge, skill and time to sell. They'd rather just sell ICE cars.

  9. There's also the issue of post-sale service as the primary revenue stream for the dealerships. Their "servicing" is one of the reasons I'm driving an electric car.

  10. I understand why Tesla wants to by-pass the dealers. Dealers tend to be the biggest problem for manufacturers and buyers. Most complaints about any particular brand are actually complaints about the dealerships. The dealerships are unethical and unscrupulous and most manufacturers would rather to just be rid of the headaches caused by them. These dealers also add great expense to the price of purchasing a car.

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