There’s NADA Stopping Tesla from Direct Sales

An odd quirk of US special interest law is proving to be a substantial road block to Tesla marketing their electric cars.  Nearly every US state has enacted so-called “franchise laws” that prohibit manufacturer direct selling of automobiles, and require that a third party car dealership serve as an intermediary in the transaction [1].  These laws prevent manufacturers from adopting a “Dell Direct” type model wherein potential buyers could use online tools to craft the exact auto package they wish and have it delivered directly to them.  Franchise laws also undercut the Tesla business model of operating company showrooms in high foot traffic areas as a way to “reach people before they make a decision on a new car” rather than having stock sit in a dealership lot that typically only draws already committed buyers [2].

Car dealerships have initiated several lawsuits against Tesla for violating franchise laws with their company showrooms, and in some states have even begun lobbying to strengthen the prohibition on manufacturer direct sales.  Colorado, for example, passed a new law in 2010 aimed directly at preventing Tesla from selling vehicles in the state [3].  Fortunately, however, some states have responded by attempting to loosen the restrictions on manufacturer direct sales.  Texas HB 3351 and SB 1659 are aimed directly at allowing Tesla to continue with their business model, though the bills do not grant other manufacturers the same leeway as they provide only for US based companies selling 100% electric vehicles [4].

While Tesla has thus far been relatively successful in fending off the court cases thrown their way, the legal challenges have proven costly and difficult [5].  Due to the mounting challenges, Tesla CEO Elon Musk is considering moving the fight into the federal realm by pursuing congressional legislation on the matter [6].  Such a move is sure to create a contentious fight as the US government is likely keen to recoup the $465 million loan granted to Tesla by the US taxpayers, but the National Automobile Dealers Association has vowed to combat any changes to existing franchise laws [7].  As a major lobbying group that spends millions per year on political campaign contributions, NADA should be able exert significant influence on the congressional leaders tasked with resolving the dispute [8].

Although Tesla seems to be a champion for manufacturer’s rights, it appears their priority is not to nullify the legislated restrictions placed on all car manufacturers, but rather, they seek to obtain special consideration. Tesla wants legislation limiting the bounds of direct sales to car manufacturers without any existing franchises [2]. Perhaps Tesla views this as a compromise with NADA, as this would close the door on virtually all other manufacturers because they have established franchises.










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One response to “There’s NADA Stopping Tesla from Direct Sales

  1. jbeceiro

    Great post on the auto manufacturer franchise laws. I follow Tesla pretty closely, and I am very interested to see Tesla prevail in this debate. Elon Musk recently spoke at the ARPA-E Energy Innovation Summit in Washington DC this past February 2013. He announced during his remarks that sales of the Model S were going so well that Tesla will be able to pay back the $465 million federal loan guarantee in half the time. This is a great story for DOE to be able to tell especially with all of the negative press they received for Solyndra.

    On the franchise law issue, I believe that this law needs to go away eventually. We’ve already seen how Texas was able to remove the “middle man” in direct wine sales from wineries to consumers. Allowing for middle men only causes prices that consumers pay to be higher. Plus, Tesla is more than just a auto company. Tesla designs every component within their vehicles and has invested aggressively into proprietary lithium ion battery technology and battery management systems. At the end of the day, Tesla is really a battery technology company. Tesla has already developed a new stationary energy storage product that is targeting the residential and commercial smart grid industry.

    In my opinion, Tesla should be allowed to have their own “Apple Stores” or Tesla Stores to showcase all of their cutting edge technologies and products. Tesla is without a doubt on the cutting edge of automotive and energy storage innovation. The State of Texas and other states that have franchise laws should recognize that innovation requires a flexible regulatory environment that allows for tech companies to flourish.

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