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]

(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]

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]

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.

Elon Musk

Elon Musk

He has urged his Twitter followers to support Tesla's fight in Texas, and in a memo to employees leaked to Forbes last week, he wrote:

It is crazy that Texas, which prides itself on individual freedom, has the most restrictive laws in the country protecting the big auto dealer groups from competition.

If the people of Texas knew how bad this was, they would be up in arms, because they are getting ripped off by the auto dealers as a result (not saying they are all bad – there a few good ones, but many are extremely heinous).

"For everyone in Texas that ever got screwed by an auto dealer," Musk concludes, "this is your opportunity for payback."

For the record, Musk was rather more measured in his words in a follow-up interview with Forbes.

The general counsel for TADA, Karen Phillips, called Musk's leaked e-mail "inappropriate" in an article in trade journal Automotive News.

The legislators of her state should be able to "see beyond the number of people at a hearing," she said, and simply focus on the existing law and its merits.

The e-mail, she sniffed, "shows the type of person we're dealing with."

Texas Tesla plant?

Musk also dangled the possibility that Tesla would consider the state for a second manufacturing plant, at whatever point it decided it needed such a facility.

The company's current facility in Fremont, California, is largely empty outside of the single Model S assembly line.

When the Fremont plant was jointly operated by General Motors and Toyota, it produced several hundred thousand vehicles a year; Tesla is targeting 20,000 to 25,000 cars this year.

In other words, any second Tesla plant seems likely to be many years in the future.

Musk suggested, however, that such a plant might be a suitable home for his vision of a future all-electric pickup truck with the "performance of a sports car" but higher cargo capacity and towing ability than a similar truck powered by a gasoline or diesel engine.

Skeptical legislators

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]

Meanwhile, the act requires a vote of two-thirds of the members of each house to become law.

While more than 40 people testified for the bill, in support of Tesla, committee members questioned whether there might be ways to further restrict the bill.

Among suggestions was the idea that Tesla would have to convert over to franchised dealers once it reached a certain level of sales.

After the hearing, Musk seemed to acknowledge that the bill might not succeed, telling the Texas Tribune that if it didn't, the company would return next session.

[Sincere thanks to Tesla owner and photographer John Griswell, who allowed us to use his photos from the hearings.]


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