Tesla Loses Legal Battles To Texas, North Carolina Dealers

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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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Win some, lose some.

Tesla's had a very good year thus far, but it was recently dealt legislative defeats in two states where it had hoped to sell its electric cars.

In Texas, the state legislature declined to make an exception to existing rules that make it illegal for automakers to sell cars to retail buyers.

In North Carolina, a Senate committee unanimously approved a bill making it illegal to sell new cars over the Internet.

The resulting laws require that all new-car sales be transacted through independently owned third-party businesses in the state.

In other words: car dealers.

Existing franchisees protected

These laws have been on the books for decades, and were originally intended to protect existing franchised dealers from predatory competition by factory-owned stores that might have gotten more favorable terms from the automakers who owned them.

While the specifics vary from state to state, a majority of the 50 states have some version of laws saying that carmakers may not compete with their franchised dealers.

Which was fine, until Tesla Motors [NSDQ:TSLA] showed up. The Silicon Valley startup maker of electric cars has no franchised dealers, so it argues that laws to protect them are not relevant.

CEO Elon Musk argues that existing auto dealers--who make all their money selling cars with combustion engines--have no business incentive to sell battery-electric cars.

'Perversion of democracy'

That's not an easy fight, however.

At Tesla's annual shareholder meeting on Tuesday, Musk said, "The automobile association is definitely creating some problems for us, making it harder to get things done."

He admits that auto dealers approach Tesla about becoming franchised dealers, but that the company simply doesn't believe that can work for a disruptive startup carmaker.

Why, he asks, would any of those businesses have the fervor needed to convert new buyers to electric cars and take business away from gasoline cars?

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

"In the last 90 years, when did it work?" Musk asked. "There are no good examples."

Musk cited survey results showing 86 to 99 percent of respondents approving of Tesla's direct-sales model, often likened to buyers purchasing iPads and iPods directly from Apple.


"If democracy is working and legislators are implementing the will of the people," Musk said forcefully, "there wouldn't be legislation trying to restrict direct sales."

He called efforts to ban Tesla's sales model a "perversion of democracy."


No action on Texas exemption

State auto-dealer associations view Tesla's direct sales as a dire threat, and many of them have worked to close the loophole Tesla represents by making it illegal for automakers to sell to retail buyers under any circumstances.

In Texas, a pair of bills that would have exempted startup makers of all-electric cars--in other words, Tesla Motors--from the state's existing ban failed to move forward in the legislative session.

Musk had testified at hearings on the bill in the state capitol in Austin; Tesla owners and supporters rallied outside the building and in front of a row of privately-owned Model S luxury sport sedans.

That means Tesla supporters won't have another chance at making its direct sales legal until 2015; the Texas legislature only meets every other year.

Tesla Store - Portland OR

Tesla Store - Portland OR

Enlarge Photo

Until then, any Texas resident who wants to buy a Tesla Model S must do so in another state.

In North Carolina, a bill that would make it illegal for a carmaker to sell a car over the Internet was unanimously approved by the state Senate's Commerce Committee.

That bill could even make it illegal for that maker to respond to e-mail inquiries--though its language remains to be tested in court.

Stopping Tesla protects you, dealers say

For an explanation of why state dealer associations feel making Tesla's sales process illegal is the best way to protect car buyers, see comments by Tim Jackson of the Colorado Auto Dealer Association here.

His group was able to make Tesla Stores illegal in Colorado early in 2010 after just a single outlet had opened there. Tesla still has just one retail location in his state.

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Comments (31)
  1. With the Internet, Tesla can hold open promotion activities, just having the cars in Malls, and pass out cars to let people order off the internet.

    Heck they could advertise the car as "So Good, we legally can't sell it to you".

    frankly these bans just make it more attractive.

  2. Tag line "A car so threatening to other auto makers, that it is banned in Texas."

  3. How ironic would it be if SCOTUS decided to abolish any restraints on interstate trade in vehicles, so that Texas laws only applied to those automakers who build cars in Texas?

    Not that it'll happen, but it'd be hilarious to watch Toyota and other carmakers battle the good ol' NADA boys..

  4. This notion that makes it illegal to "buy direct from the factory" is just so terrible and wrong! What's next, making it illegal to buy food directly from farmers? Yes, traditional retail chains are under attack from the internet, but so what? As long as taxes are paid (and that is crucial), that is the direction we are heading, like it or not. I buy almost everything today via the internet, so why not cars direct from the automaker? Yes, it causes unemployment in the retail sector, but it makes for employment in the delivery sector. It's in the very nature of our system that progress and cost efficiencies are always ongoing. Change is inevitable. And making electric cars cheaper should be a higher priority to save our planet.

  5. "If democracy is working and legislators are implementing the will of the people," Musk said forcefully, "there wouldn't be legislation trying to restrict direct sales."

    Unfortunately Congress is proving over and over that democracy does not work [well] in this country

  6. Rainer, I wish I could find a way to disagree with you. Political lobbyists have such a stranglehold on the democratic process I fear that there's no way short of a "reboot" that it will ever change.

  7. Amen. Governments on all levels can't find their "a** from a hole in the ground. Those that have fully embraced the Internet sales methodology are doing very well with expanded sales territory. Those that have not prefer to get their butts chewed out every Monday and a little more at the end of the month. There is no reason any dealer can't adopt a sales model similar to eBay. I could write a book on this subject.

  8. Vested interests will find a way to throw spanners in the works of disruptive newcomers.

    In the EU something similar is happening with solar panels. Cheap Chinese production has caused prices to come down to the point solar has become a disruptive factor in the energy sector.

    The answer is the same as dealing with Tesla: contact some friendly politicians, find a stick to hit the dog and make up some BS story to obfuscate your real reasons.

    What's happening in Europe is that the Chinese find themselves accused of price dumping and are facing EU import taxes that might almost double the prices eventually, making solar the uneconomical alternative the energy sector no longer has to worry about again. Next USA?

  9. Well observed...high import taxes for something that chinese do and is very useful, but not high import taxes for others energy-intensive chinese crap.

  10. @ChrisO

    United States has already imposed import duties on cheaper Chinese solar panels last year, ahead of EU (thanks in-part to German company manufacturing in US): http://www.nytimes.com/2012/10/11/business/global/us-sets-tariffs-on-chinese-solar-panels.html?_r=0
    The case created a great devide among solar installers in United States.

  11. "The case created a great devide among solar installers in United States. "

    Correction: The case created a great divide among solar installers and solar panel producers...

    Installers such as Solar city loved cheaper Chinese panels. But solar panel producers in the US hated it.

  12. Why not use franchised dealers? I've been to tesla showrooms and its not an awesome experience, okay but not awesome. Some, few though, are wonderful. Why not share the prosperity a bit?

  13. Ah, I've been to a dealership, and it was the opposite of an awesome experience. I would avoid them like the plague.

  14. The franchised dealers could help the cause if carefully selected.

  15. Well, 1 problem is that dealers are independent. You can't force a dealer to ONLY sell Teslas. And with the current Tesla Volume, it won't survive. Dealers also make a lot of money in service, maintainence and used car sales. EVs require FAR Less service and used Tesla doesn't exist.

    What is the incentive for a dealer to sell a Tesla over a BMW?

    Remember, typically a dealer makes few hundreds to maybe couple thousands on a brand new car. They can make far more on used car sales and services over the lifetime of the car from both in-warranty and out of warranty services...

  16. Presumably there's a business in being the preferred vendor for dealing with trade-ins, and with "dealer incentives" perhaps a used-car specialist would be incented to be a 'franchise' that Tesla would de-facto control if not de-jure.

  17. Democracy may become to be narrower as far more EVs come to the streets.

    While EVs were seen as few exotic cars owned by few exotic people, the democracy was all right.

    When some hidden interests begin to be threatened...I remembered the 1988 Francis Coppola's film - Tucker: The Man and His Dream.

  18. Tesla should open a store in Johnson City, TN and and advertise over NC where to go to see the car that dealers are scared to death of.

  19. @M_A raises an interesting point…

    If a talk radio show in TN, (or other neighboring state to NC) were to discus purchasing with a Tesla spokes-person on-air would it be considered "selling" if a person in NC happens to tune in? Radio waves do travel through deep space!

    Could a sign on side of NC freeway promoting "Free SuperCharger Fill-Ups" be considered promotional activity related to "selling" Model S's?

  20. Don't think they are afraid of the car, they just want to make an easy buck sell big dollar cars. If other manufactures followed suit they would be out of business.

  21. You can cut all the flowers you want but Sprint time comes around and dinosaures eventually whither away :)

    They're digging their own graves.

  22. Tesla isn't ONLY opposed to franchise dealers because they tare concerned the dealers won't properly sell their product. They can't go the dealer route because it blows up their pricing. If they had to pay a middleman their commission, Tesla would have to add something like 5% to 8% the the price of the car. It would nearly eliminate the savings of the Federal tax credit.

  23. Not to mention the lack of service/maintainence so dealers will make even less money on the car over its lifetime.

  24. I must say I feared Texas and NC would pass this " law " ! Whatever happend to the good old US democracy ? Let`s face it ; When this car dealer law came around , I believe sometime after WW 2 , we had no internet or cellphones and what have you ... Wake up , guys - meaning car dealers ; you`re digging your own grave here ! Hang in there , all you great Tesla people !!

  25. Tesla... all you have to do is open an internet car store, with every car you make on it as a virtual simulation. Than, copyright the hell out of the idea, nd just wait until the oil reserves dry up, and then you'll be on the other side of the stick. In about five, maybe ten years, combustion engines are gonna be antiques anyways (with the oil reserves dried up, there isn't gonna be any gas... sooo).

  26. @Robert - isn't it pretty clear that we've got the best democracy money can buy? Why do you hate America? ;-)

  27. Norm; Do you mean the best government money and ill legal voting can buy?

  28. Tesla will have to export in order to grow

  29. Tesla is starting to scare the Vested interests. Look at the conventional gasoline powered automakers approach to building an EV. First of all make it stand out "in a bad way" in styling department. Second thing is market it that it may be range compromised and slow but it is good for the planet and maybe you will wish to buy one of our gasoline powered real cars. Offer no more than 75 miles of driving range and cite all sorts of statistics showing how your car will satisfy the needs of 95% of the people. Conventional automakers and their dealer have a vested interest to convince people that EV's will always be inferior to a large sexy powerful gasoline cars and Tesla is Disrupting that image they are trying to sell to the American public.

  30. Wonder how much the dealerships donated to the Texas legislative to make this happen? If the salespeople weren't so pushy and making people buying cars feel good about their purchase instead of making them feel that they were cheated, the dealerships wouldn't have a problem keeping their customers. Having to lobby to prevent people from being able to bypass them is really sad, especially since I bet there are no conditions for consumers included that makes it illegal to get used by sleazy salesmen.

  31. I don't own a Tesla, I owned a Saturn (GM orphaned them after 20 years). I traded it in on a Volt, Chevy's electric/gas hybrid. I went to a Chevy dealer & had one built. The sample was loaded with things I wouldn't order, & I met with a minor amount of resistance to having them build a car from scratch. The reaction was "How can you not take this car as outfitted?" when the dealer wasn't offering what I wanted. It was bad enough that they wouldn't put me on a list for an SUV GM has on its web site. I bought a Volt because it will be worth more in trade when a plug-in hybrid SUV is released. I will buy an SUV in that configuration when available no matter who makes it! Dealers buy cars from manufacturers to sell them, not order them!

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