Tesla is no stranger to strong resistance, shall we say, from auto dealers to its unusual method of selling the all-electric Model S in certain parts of the US. A lawsuit by the Massachusetts State Automobile Dealers Association was thrown out late last year, but it was later appealed. Tesla has also been sued in New York. The company has staunchly defended its right to sell cars via its company-owned stores – or, at least, to use the stores as a way to direct potential customers to its website to order a vehicle – but it's facing its biggest hurdle yet in Texas. The size of the problem is so Texas-sized that CEO Elon Musk spoke at the state capitol in Austin yesterday.
At issue is House Bill 3351, which was filed by State Representative Eddie Rodriguez (D), that would allow electric vehicle companies to sell their wares directly to the public and not have to go through a dealer. Musk said the issue was a matter of "life or death" for Tesla, according to the Austin Business Journal. Tesla says the testimony at a hearing on the bill was "overwhelming ... in favor of Tesla."
"Franchise dealers have an inherent conflict of interest between selling gasoline cars and electric cars."
Musk's point is that selling an electric vehicle is different than selling a traditional gas-powered car, and that direct sales are "the best chance a new electric car company has of succeeding." The company's official statement continues:
The way things stand in Texas now, the Tesla stores – excuse us, galleries – cannot offer test drives, cannot discuss the price of the car (or any financing terms) and cannot refer potential customers to out-of-state stores to actually order their cars. Tesla employees can't be on hand when its cars are delivered in Texas and registering a new Model S sounds like a frustrating experience, if Tesla's description is accurate, with the sales tax not being rolled into the financing payments. Oh, and there's even a special subsidiary, Tesla Motors TX, with service centers in Austin and Houston that, "cannot advertise that they do warranty repairs nor can they discuss any additional repair needs or concerns with the customer. Tesla Motors TX then bills Texas Motors, Inc. for the work. If customers have additional warranty concerns, Tesla Motors TX cannot discuss them with the customer – the customer would need to call Tesla Motors, Inc. back and go through the process again." Despite all the hassles, Tesla has delivered more than 400 Model S and Roadster EVs in Texas, "with more arriving every week."
Electric vehicles simply cannot be sold side by side with gas vehicles because they will always be a minority item in terms of sales and service volume. Existing franchise dealers have an inherent conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars. It is impossible for them to explain the advantages of going electric without simultaneously undermining their traditional business. Simple math shows no traditional dealer is incented to sell an electric vehicle with the same enthusiasm as the rest of their inventory.
Tesla has put up an informational page as well as Musk's blog post on the issue, if you'd like to read more. For an interesting look at why car dealerships exist the way they do in the US today, listen to this Planet Money story.
AUSTIN, Texas – April 10, 2013 – Elon Musk, CEO and co-founder of Tesla Motors, spoke at a news conference at the Texas Capitol today advocating for passage of House Bill 3351/Senate Bill 1659. Under the current Texas Occupations Code (TEX OC. CODE ANN. § 2301.476), Tesla is unable to sell its vehicles directly to the public because it has no franchised dealer relationships in Texas (or anywhere else in the U.S.). This follows overwhelming testimony in favor of Tesla at a Committee on Business and Industry hearing yesterday.
"Our goal is to bring electric vehicles to the mass market by telling our story, educating the public about electric vehicles, and delivering the best car in the world," said Elon Musk, Tesla Motors co-founder and CEO. "The ability to sell cars through Tesla-owned stores is important for sustainable transportation and is the best chance a new electric car company has of succeeding. Our sales model allows for innovative technology to be more affordable to the broader population in an unconflicted way, without changing the dealer model for gasoline-powered cars."
The Tesla sales and service model is based on direct customer relationships, without an intermediary licensed dealership. This is fundamentally different from the traditional dealership model just as an electric vehicle is fundamentally different from a gas powered car. Electric vehicles simply cannot be sold side by side with gas vehicles because they will always be a minority item in terms of sales and service volume. Existing franchise dealers have an inherent conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars. It is impossible for them to explain the advantages of going electric without simultaneously undermining their traditional business. Simple math shows no traditional dealer is incented to sell an electric vehicle with the same enthusiasm as the rest of their inventory. Tesla is only seeking the ability to sell and service its cars and tell the electric vehicle story in an unfettered way, allowing Texas consumers to make their own choice in favor of sustainable transport. The passing of the bill would also enable Tesla to invest in major metro areas of Texas by opening and staffing more stores and service centers.
The bills in question, House Bill 3351/Senate Bill 1659, filed by Sen. Craig Estes (R-Wichita Falls) and Rep. Eddie Rodriguez (D-Austin), would permit U.S.-based manufacturers of 100% electric- or battery-powered vehicles to sell directly to Texas consumers. It's a very limited classification of exception to current laws and does not harm any existing dealer franchise.
Tesla Motors' (NASDAQ: TSLA) goal is to accelerate the world's transition to electric mobility with a full range of increasingly affordable electric cars. California-based Tesla designs and manufactures EVs, as well as EV powertrain components for partners such as Toyota and Daimler. Tesla has delivered almost 10,000 electric vehicles to customers in 31 countries.