Tesla continues to whittle away at state laws that ban direct sales of automobiles. Last fall, Tesla was able to reach agreement with Virginia and its automobile dealers association to open a single store in Fairfax. A move to ban direct sales in Missouri died on the vine this past May and Tesla is now considering opening a second store in the state. Now Tesla looks to overcome the same hurdle in New Jersey as the state’s Consumer Affairs Committee approved a bill that would allow Tesla up to four stores. The states of Nebraska, Texas, Maryland, and Arizona still remain obstacles for Tesla’s business model. Arizona could be the next state to relent especially if Tesla decides to build their $5 billion battery Gigafactory in the state as has been rumored. Maryland faces an awkward situation if they continue their ban since they are now part of a new multi-state agreement to promote Zero Emission Vehicles or ZEVs (see our earlier article). Texas and Nebraska (whose law is patterned after Texas’ strict regulation) may prove to be the most difficult to overcome.
The NJ bill still needs to move forward but is most likely to pass since New Jersey is also part of the new multi-state agreement to proliferate ZEVs. As with Maryland, it faces an awkward situation if it continues the ban especially in light of the Federal Trade Commission’s comments in May that such bans are essentially protectionism that likely harm competition and consumers. The National Automobile Dealers Association (NADA) counters that dealers actually benefit consumers through competition that keeps prices down and by providing service requirements including any product recalls. Tesla meanwhile maintains that dealer’s business models are set up to make money on vehicle maintenance of which Tesla needs almost none.
These battles underscore the monumental task that Tesla has in facing “big auto.” While those states put these bans in place in part for the “good of the customer,” one can be assured that they’re also motivated by other less magnanimous reasons. At the moment, states are appeasing the FTC by making an exception for Tesla while limiting the number of stores and requiring a service center. The interesting juncture will come when (and if) Tesla’s sales outgrow the allotted number of stores and begin to impact “big auto’s” numbers. Tesla’s upcoming Model X introduction may accelerate that tipping point.