By on March 24, 2014

Tesla Roadster and Model S

In the first edition of the Tesla Reader’s Digest, Washington state makes nice with Tesla’s business model as Arizona ponders doing the same — while fighting three other states for the right to host Tesla’s Gigafactory, no less. Meanwhile, General Motors pens a letter to Ohio asking the state to force the EV automaker to play by the same rules as they already do, pricing of the Model S falls in Europe, and Edward Niedemeyer offers his view on how Tesla can topple the auto dealer monopoly.

The Detroit News ran our former EIC (originally published at Bloomberg View) a few inches to explain the situation Tesla faces with its revolutionary-for-the-United States model of doing business from the rent-seeking opposition found in the entrenched dealer franchise system. Though the automaker has already been locked out of Texas and New Jersey due to such opposition thus far, Niedermeyer offers that CEO Elon Musk has a few potential allies — including Fiat Chrysler Automobiles, eBay, Costco and TrueCar — who could help him and the U.S auto industry as a whole bring about a future where all automakers can sell directly to customers.

Reuters and CNN Money report the states of Washington and Arizona are or soon will be signing legislation allowing Tesla to market directly to consumers; previously, the automaker’s sole Washington direct-sales efforts were in Seattle, whereas Arizona only allowed showrooms, pushing sales across the border to California.

The Washington legislation came as a result of campaigning from that state’s Tesla-owning constituents with help from a lobbyist, which will allow the automaker to expand into more cities while forcing every other automaker — upcoming or long-established — to sell through franchise dealerships, a situation advocates claim will need to be remedied when legislatures return to Olympia next January.

Arizona, however, is coming around to help improve the state’s chances in becoming the home of Musk’s grand energy project, the Tesla Gigafactory. Autoblog Green also reports Tucson has not only a suitable site for the 1,000-acre, 10 million-square-foot battery factory, but the tax incentives to lure 6,500 jobs away from Nevada, Texas and New Mexico.

As for the other three states, New Mexico is working on an economic package, while Nevada remains silent on their moves, and Texas has incentives galore in spite of banning direct-sales, the latter of which could hurt the state’s chances.

Speaking of direct-sale bans, Automotive News reports General Motors penned a letter to Ohio governor John Kasich over concerns his state could open the door to Tesla. GM’s senior vice president of global communications and public policy Selim Bingol explains his employer’s viewpoint:

We understand discussions are ongoing over legislation which could provide a broad exemption for a single manufacturer, Tesla Motors Inc., to circumvent long-established legal precedent on how new motor vehicles are marketed, sold and serviced in your state.

GM is not alone, as lobbyists representing the Ohio Automobile Dealers Association warned the state legislature last week that by allowing Tesla to sell directly to consumers, it would allow all automakers to do the same, casting the franchise model to the wind.

Finally, Tesla may be fighting a different battle in Europe. Inside EVs reports pricing of the Model S has dropped in Germany and Netherlands 6,700 euro and 4,000 euro respectively to 65,300 euro and 66,200 euro. Though Tesla cites currency appreciation against the dollar, low demand and lack of a sufficient Supercharger network may be to blame.

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22 Comments on “Tesla Reader’s Digest Vol. 1: The Politics Of Dancing...”


  • avatar
    Jeff Weimer

    I think it’s not so much a “monopoly” as an oligopoly. It is rent-seeking and artificial barriers to entry, for certain.

  • avatar
    raph

    I guess GM’s dealer network is really twisting their arm since the direct sales model doesn’t seem to be a real problem for GM or any vehicle manufacturer.

    A service center and parts department has to be a helluva lot cheaper to deal with than a full blown stealership.

  • avatar
    SCE to AUX

    When GM is writing letters to governors about Tesla, it’s clear that Tesla is disruptive.

  • avatar
    james2k

    Founder? Has Farago been erased from history?

  • avatar
    ExPatBrit

    There are already two Tesla stores in WA .

    City of Seattle and the city of Bellevue.

    Bellevue store must do well because they are popular around here, see about a dozen of them every day on my various commutes.

  • avatar
    brenschluss

    So I’m curious about this:

    “…Lobbyists representing the Ohio Automobile Dealers Association warned the state legislature last week that by allowing Tesla to sell directly to consumers, it would allow all automakers to do the same, casting the franchise model to the wind.”

    According to our friendly neighborhood dealer representative David Ruggles, automakers have been unsuccessful with this several times before, and Tesla is only able to eschew the franchise model because of specific circumstances that aren’t applicable to say, GM. So, GM should have no interest in maintaining a vertically-integrated dealer network all by itself.

    So why do the dealer’s lobbies care?

    • 0 avatar
      Pch101

      Automakers would be able to cherrypick the best locations, and to use their control over inventory in order to strongarm those retailers whom they covet. That’s particularly a problem for dealerships, as they usually have only one supplier for their new car inventory.

      • 0 avatar
        brenschluss

        So if the problem is, as Ruggles said, with the mixed system, why not allow them to either own all of their own stores or use franchises?

        And besides that, would it even make financial sense for a GM or similar to actually push a franchise out of an area and sell on its own were it possible to do so? If so, how would the customer experience be affected? How much would prices actually go up? I’m not convinced yet that it would be so horrible, save maybe for dealers but I don’t feel much sympathy for the industry as a whole.

        • 0 avatar
          Pch101

          The dealers are like the NRA — they don’t want to give any ground or negotiate compromises because they believe that it would create a precedent that would lead to more compromises in the future. It’s more politically expedient for them to fight everything.

      • 0 avatar

        Don’t the franchise contracts already include non-competition covenants? Hard to believe Bill Heard has less protections than a 7-11 franchisee.

        • 0 avatar
          Pch101

          Car dealerships are often 7-figure businesses.

          Automakers are multibillion dollar global enterprises.

          It’s a David-Goliath sort of matchup, except for the fact that this David’s a jerk.

  • avatar
    Dr. Kenneth Noisewater

    Theoretically, Texas _could_ hold a special session in order to pass a law that would allow for Tesla to sell direct (such as, say, “Manufacturers may sell vehicles anyplace where they have not already sold franchise rights to an independent dealer”, which is what Tesla rightfully describes as their only legitimate rationale for existence). IMO that’s the only way that Texas has a chance, unless they dump hundreds or thousands of millions in free gimmies.

    Even then, my money’s on Nevada, somewhere between Reno and Tahoe. It’s the best overall choice, barring said gimmies.

    • 0 avatar
      George B

      I’m skeptical that Gov. Rick Perry will call a special session to allow direct sales of cars. However, he’s speaking out in favor of changing Texas law to allow direct sale of cars. http://bizbeatblog.dallasnews.com/2014/03/gov-perry-its-time-for-state-to-revisit-antiquated-rules-that-prohibit-tesla-sales-in-texas.html/

      The Texas constitution, written in 1876 after Reconstruction, puts lots of restrictions on the power of the Governor and government in general. Gov. Perry can’t do anything without the support of a majority of legislators, the Speaker of the House, and the Lieutenant Governor who’s busy losing to a primary challenger right now. There are many ways to block legislation including simply running out the clock.

  • avatar

    The law is an ass. I can understand the need to provide some protection for dealers who make a significant capital commitment to a single manufacturer against being unduly struck off but none of this applies to Tesla which is an all new start up.

    If they went to sell direct there should be no impediment to that given that no-one has made an investment in their own Tesla dealership so there is nothing for anyone to lose.

    I have long argued to my friends that manufacturers should have their own experience centers where you can try vehicles out and then be able to simply order online. That would work best for me rather than deal with a bunch of uneducated morons in a traditional dealership.

  • avatar
    schmitt trigger

    Has New York State banned sales of Tesla?

    Because if that is the case, it would be extremely simple for North New Jersey inhabitants to cross the state line and purchase a Tesla?

    Would they be able to register in NJ? My guess is that they could, because I saw a Tesla showroom last week at a Short Hills, NJ shopping Mall.


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