Electric car manufacturer Tesla has been in discussions for some time with the New Jersey Government and Motor Vehicle Commission about the implementation of its direct dealership model. This week the Administration, following suit with Texas and Arizona, moved to block Tesla from selling cars in its own stores. So what's all the fuss about?
Tesla called the move "an affront to the very concept of a free market" in a blog post on Monday, saying that the proposal "would, among other things, require all new motor vehicles to be sold through middlemen and block Tesla’s direct sales model." The EV manufacturer argues that the Administration and New Jersey Motor Vehicle Commission are "going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers."
Kevin Roberts, a spokesman for the office of NJ governor Chris Christie responded by saying that the "administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation and Tesla has been aware of this position since the beginning."
So in a nutshell, Tesla wants to push forward with its direct sales model, while the government wants to protect the traditional model where cars are sold through franchised dealerships.
So what is it about Tesla’s unconventional model that is such threat to the American way? Well for one thing, it’s different. For some the idea of change seems right up there on par with alien invasions and communism. If it ain’t broke, don’t fix it.
The Tesla dealership model is agile and small. Typically no bigger than a good sized shoe store the Tesla shops can be found in fashion districts, shopping centers or as standalone stores. The dealerships or boutique shops, in keeping with Tesla’s contemporary approach are designed with highly stylized kiosks, color palettes and swatches, the occasional Model S, high gloss finishes and non-commission sales people. The idea according to Elon Musk is to allow consumers to be properly educated, without the typical high pressure sales tactics predominantly associated with traditional dealerships. So that’s the big scary monster that will destroy America and has auto dealers running for their shotguns and bear spray?
Tesla argues that its specialized stores are not only a way to sell new cars but to also promote new technology. Again quoting Tesla's blog post from earlier this week: "This model is not just a matter of selling more cars and providing optimum consumer choice for Americans, but it is also about educating consumers about the benefits of going electric, which is central to our mission to accelerate the shift to sustainable transportation, a new paradigm in automotive technology."
Unfortunately for Tesla, New Jersey isn’t the first state to snub the company’s unique dealership concept. Texas and Arizona have both implemented laws making it illegal for Tesla to sell cars in their states. Tesla says that under the current Texas Occupations Code, it is" unable to sell its vehicles directly to the public because it has no franchised dealer relationships in Texas, or in the other states.”
Tesla surprisingly still has two dealerships in Texas; one in Houston and one in Austin. While this may sound like it managed a workaround to the legal dilemma, Tesla employees at these galleries are “prevented from discussing pricing, lease options, or offering test drives.” The in-shop kiosks have also had all pricing removed. But what if a clever, entrepreneurial employee just happens to mention a dealership in California that can help with pricing, leasing, etc. questions? Texas lawmakers have already thought of that. No, employees cannot provide assistance to interested consumers. The same restrictions will apply in New Jersey.
Rhett Ricart, President of Ricart Automotive in Columbus and a plaintiff in a lawsuit filed against Tesla in Ohio, provides an insight into the attitudes Tesla is up against in an interview with Bloomberg : “I don’t want ‘Hydrogen Motors’ to come along five years from now or some other Mickey Mouse thing to come along and then just jack up the industry. It’s not right.” Ricart does give Tesla a back-handed compliment by saying, “they build a great car,” however, he goes on to add that “the reason these laws are in these states are to protect the consumers.”
"Consumer protection" seems to be a stick used by both sides in this debate, but it's hard to see how clinging to an 80 year old business model that only adds costs to the finished product is benefiting consumers.
There is of course, an elephant in the room in all of this. “In 2012 there were an estimated 17,600 dealers of new cars and trucks in the US," according to the Bloomberg report cited above. "From that group, over US$676 billion of sales were generated, accounting for almost 15 percent of all US retail activity.” To say the automotive industry and its dealerships are an integral part of the US economy is to state the obvious. However, "over $86.8 million of dealership monies was spent on state election races across the US since 2003 with $57 million funneled into federal campaigns.” Tesla, the new kid on the block, has only only managed to throw roughly $500,000 towards state and federal politics. There's also the issue of the amount of tax dollars each dealership brings to state coffers. A figure hard to ignore on either side of the aisle.
So is this all just a bit of good ol' fashioned fear mongering on the part of the establishment? It wouldn't be the first time. In the 1970s and 80s when foreign entities started to enter US markets, anti-American rumblings became common place and driving a foreign car like a Toyota or a Datsun (Nissan) was frowned upon in some quarters. But Tesla isn’t a foreign entity, it’s a home-grown success story that employs 4,000 people and whose stocks have risen 500 percent in the past 12 months. Its Model S has consistently been named as one of the best overall cars in recent memory – of gas or electric persuasion. My personal experience in driving the Model S has not only changed my opinion of what an electric car can be, but further reinforced the argument that technology of this quality is the way of the future. Maybe not tomorrow, or next year, but slowly the shift from that of a gas-only, my F150 is bigger than yours mentality will happen. It seems to me that this whole is dust-up is a case of not seeing the hood ornament for the trees.
What next? Tesla being Tesla, and Elon Musk being Elon Musk, are not taking this lying down drinking flat mojitos. The next salvo will be fired when Musk testifies in person at a hearing into the issue at the Texas State Capitol building on April 9.