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.

 [1] http://www.justice.gov/atr/public/eag/246374.htm

[2] http://www.teslamotors.com/blog/tesla-approach-distributing-and-servicing-cars

[3] http://www.greencarreports.com/news/1080001_auto-dealers-fight-against-tesla-stores-elon-musk-weighs-in

[4] http://www.latimes.com/business/autos/la-fi-hy-tesla-ceo-takes-dealer-fight-to-texas-says-he-can-sell-more-cars-20130410,0,1676772.story

[5] http://www.roadandtrack.com/go/news/go-news-tesla-wins-dealership-lawsuit

[6] http://www.autonews.com/apps/pbcs.dll/article?AID=/20130415/RETAIL07/304159943/teslas-musk-ill-take-store-fight-federal#axzz2RliwqJ00

[7] http://www.bizjournals.com/pacific/stories/2009/06/22/daily33.html

[8] http://www.opensecrets.org/orgs/summary.php?id=D000000080

Is America Ready for the Leaf?

In December of 2010, Nissan dealers will begin selling a new fully electric car called the Leaf. At a MSRP of $32,780 (not including delivery fees or taxes), the leaf will be the first affordable mass-produced fully electric vehicle. Tesla currently sells a high performance electric roadster, which costs over $100,000 making it an unsuitable choice for the average car shopper. However, by the end of this year Nissan will provide a larger demographic of car buyers with the opportunity to purchase an emissions-free plug-in electric car. With a 24 kWh Li-ion battery bank, the Leaf, on average, can deliver a 100-mile driving range per complete charge. Nissan claims the Leaf has a top speed of 90 mph and can accommodate five passengers.

Instead of going to a gas station to refuel, owners will have to recharge their car in a charging station that they must buy. Nissan claims that the average cost of installing a 220V charging station will be $2,200. Using the 220V charging station, it will take between 4 to 8 hours (depending current rating of charging station) to fully charge the Leaf. Nissan claims that a full charge will cost owners less than $3 on their electric bill and provide the mentioned 100-mile driving range.

The cost of electricity needed to operate the Leaf over a certain range is less the cost of fuel used in conventional IC engine cars and hybrid cars for the same range. It does not take a detailed mathematical analysis to show that unless the cost of gas is very high, a person will not save money by buying an electric car such as the Leaf. Cars like the Toyota Prius and Toyota Corolla are very fuel-efficient, and have MSRP’s of $22,800 and $15,193 respectively.

Shoppers looking to buy a “green” car will definitely include the Leaf in the list of cars they are considering. However, the financial incentive of purchasing the Leaf does not exist. Policy makers must take action to lower the price of the Leaf and make it an economically feasible substitute among other “green” cars. On a national level, the DOE will provide a $7,500 non-refundable tax credit to people who purchase the leaf. Additionally, a non-refundable tax credit worth 50% (capped at $2,000) of the cost of installing charging equipment is available. It is important to realize that that these tax credits have the potential to make the Leaf much more competitive. The word, potential, is emphasized because not everyone will be able to benefit from the full tax-credit they qualify for. For example, to benefit from the full $7,500 tax credit a single person must have a taxable income greater than $45,275. Additionally, to take advantage of both the tax credit for the car and the charging station a person’s taxable income will have to be even higher. Since these credits are non-refundable, the level of benefit someone receives is based on their taxable income. Since not everyone can fully benefit from the tax credit, the car becomes less competitively priced, thus decreasing the percentage of “green” car shoppers who can afford to buy the car. This is a big problem if market penetration of electric cars is important in the United States. California for example, will give residents a $5,000 purchase rebate for the Leaf. The rebate has nothing to do with taxable income and gives everyone the opportunity to receive the same savings. A $5,000 purchase rebate combined with the federal tax credit for the car has the potential to reduce the price of the Leaf by $12,500. If this savings is realized, the Leaf will suddenly become the best economic decision for shoppers and will create a high demand for electric cars. The future of electric cars is uncertain in the US, but the policy California has made may play a huge role in whether or not the Leaf is successful in the US.

Another obstacle for the Leaf worth mentioning is the fact that it has a limited range. This is a constraint owners of conventional IC engine cars do not have, and is one that electric vehicle owners will have to accept. The sole idea of not being able to make a long distance trip might make some shoppers hesitant to buy the car. Additionally, the need for an at-home charging station will reduce the number of “green” car shoppers that choose to buy the Leaf. If a person does not own a home with a garage, installing a charging station might be very inconvenient and may not even be possible.