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Energy and Environment Reporting for Texas

Tesla Has Eyes for Texas, But Will the State Oblige?

Photo by Olivia Gordon/StateImpact Texas

Tesla want's to sell it's electric vehicles in Texas directly to consumers, but will the legislature oblige?

There are lots of retail businesses that have come to Texas recently: Trader Joe’s, H&M, even In-N-Out Burger, a move so bittersweet it brought one Dallasite to tears.

But for one gleaming, seductive product with an almost astronomical price tag, you’ll have to look elsewhere — the Tesla electric car.

Because of state law (which is similar to those in many other states), manufacturers of cars can’t directly sell new cars to customers in Texas. Enter Tesla, who wants to do just that, and is now engaged in a full-press charm offensive to get the Texas legislature to amend the law. Tesla maintains that their only chance of survival is to own their own dealerships, and under current law they can’t market and sell their electric cars fairly and profitably.

To give you an idea of what it’s like trying to buy a Tesla in Texas, I went to the company’s showroom at the Domain in Austin. There, a shiny black Tesla S sits in the center of a long, narrow showroom, with bright lighting, clean lines, and no clutter, much like an Apple store. There are T-shirts, swag, some seats and large posters extolling the car’s virtues. But the star of the room is the car.

You just can’t drive it, or even find out from Tesla staff how much it costs.

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Photo by Olivia Gordon/StateImpact Texas

The Tesla showroom in Austin, Texas, where you can look, but not drive.

That’s because this isn’t technically a dealership, it’s a “showroom.” If I wanted to buy (and, miraculously, could afford) a Tesla S, with a fully-loaded sticker price of over $100,000, to test-drive it I’d have to fly to one of their dealerships in another state. I could buy a Tesla from Texas, I’d just have to do it online and not from their company here.

Several Tesla figures and enthusiasts testified Tuesday at the Texas House Business and Industry committee in favor of a bill currently being considered by the legislature, HB 3351. It would give electric vehicle companies — namely Tesla — the right to own their own dealerships in the state.

The author of the bill, State Rep. Eddie Rodriguez, D-Austin, said at its first hearing yesterday that there are few “legal and profitable” ways to sell electric vehicles under the current dealer franchise model, so an exemption was necessary. “On a personal note, I’d like to say I’ve driven one of these cars and it was awesome,” Rodriguez added, “but a little out of my price range.”

Opposed to the exemption is the Texas Automobile Dealers Association, the group representing many new car dealers in the state. Carroll Smith, a former director and current Texas Director for the National Automobile Dealers Association, testified against the bill, saying that existing franchise laws “emerged from many years [of work], finely tuned by state regulation. To allow someone outside of it is kinda unique.”

Electric vehicles aren’t unique, Smith argued, and the Tesla is “only one of a niche of vehicles that is about to get very crowded.” Smith said that manufacturers have announced a dozen new electric vehicle models coming out in the next few years, with three times that in hybrids. “If a Tesla sells itself,” Smith said, “it’d be at the front row.”

Photo by Olivia Gordon/StateImpact Texas

The Tesla S at the company's showroom in Austin.

Smith argued that the franchise laws that prevent manufacturers* from selling directly protect consumers and result in better service and options.

“Honestly, there’s not a lot of money to be made selling electric cars,” Tesla Motors CEO and Co-founder Elon Musk testified at the hearing, saying that traditional dealerships make a lot of their revenue from servicing, a revenue stream largely irrelevant to his company. Tesla argues that it doesn’t compete with traditional dealerships because its cars require little service (all battery and practically no engine = much fewer parts, belts, hoses and things that can go wrong). If Tesla were to go through the usual franchise system, Musk said, “We’d be at the back of the bus. It’s a matter of life or death.”

He likened his company to another Texan start-up from a while back, Dell Computers. “If [Michael Dell] hadn’t been able to go direct when he started out, Dell computers wouldn’t exist today,” Musk said.

Musk estimates that if Tesla were allowed to sell directly in Texas, it’d be a small piece of the auto sales pie. Of the 14-15 million new cars being sold in the country (with over a million of them in Texas), Tesla is only moving 10,000 vehicles a year in the U.S. If they were allowed to do direct sales in Texas, he thinks they’d sell between 1,500-2,000 vehicles a year here. (Musk estimates they’ve already sold over a thousand Teslas in Texas, despite the obstacles of not having dealerships in the state.) “This is less than small potatoes,” Musk said. “It’s tiny potatoes.”

State Rep. Rene Oliveira, D-Houston, encouraged Musk to sit down with the dealers and see if they could work out a compromise.

State Rep. Jason Villalba, R-Dallas, asked if the bill could be re-worded to be very limited to just allowing Tesla direct dealerships, with no room for it to be expanded to the larger manufacturers.

“I think that’s counter to how most of us think,” Smith of the Dealers Association replied. “To give someone a free ticket and say, ‘Come on in.’ I think it’s absolutely the wrong thing to do.”

Rep. Rodriguez asked, what if Tesla were allowed to sell a limited amount of cars directly, say, 5,000?

“I would be opposed to that,” Smith replied.

“But innovation needs a little help,” Rep. Rodriguez said. “What if it was just ten cars?”

“They ought to operate under the same rules as everyone else does,” Smith said.

One Tesla customer pleaded with the lawmakers to get a taste of Tesla for themselves. “Please drive it,” William Jones said. “It will blow you away.”

“It’s a sweet ride,” Rep. Rodriguez agreed.

The hearing ended with the bill still pending in committee, but it’s likely to come up again soon.

Update, May 14: The deadline for the Tesla bill to pass out of the House has come and gone, but a Senate version is still alive. Read our latest update here.

Update April 24: HB 3351, which would allow Tesla to own direct dealerships in Texas, passed out of committee this week. The bill was changed to only allow the company to sell 5,000 vehicles per year before having to enter the franchise dealership system. In earlier testimony, Tesla CEO Elon Musk said he expects the company would sell between 1,500-2,000 electric cars each year in Texas. Now it heads to the House floor.

*Correction: This post originally said “Smith argued that the franchise laws that prevent dealers from selling directly protect consumers and result in better service and options,” it should have read “that prevent manufacturers.” We regret the error and it has been corrected. 

Comments

  • Dawson

    It isn’t all the tech. problems that tesla is having as much as the fact that tesla exists because they used organized crime to fund themselves. DELOITTE, GOLDMAN, K&L GATES, KPCB, MUSK AND WESTLY paid bribes and took part of the free taxpayer money to put straight in their own pockets. They used crime to get to where they are, not innovation. McKinsey Consulting helped them, including Raj.

    • http://www.facebook.com/people/Scott-Rankine/100001994158042 Scott Rankine

      I’m not sure where you are getting your facts from but Tesla was founded and funded by Elon Musk, the co-founder of PayPal and SpaceX, the world’s most successful private rocket company that has reignited America’s space program.

      Tesla is a public company that this quarter became the first new ‘profitable’ domestic car manufacturer in over 80 years and now employs thousands of American workers to build what are widely viewed as the world’s most advanced automobiles. They have announced that the government loan they secured in 2009 will be paid back (plus interest) in its entirety well ahead of schedule. That’s how the free enterprise system is suppose to work – you invest your own blood, sweat and tears to create something of real value and people invest in you. The government’s role was to provide ‘timely assistance’ to help car makers like Tesla, GM and Chrysler weather the worse recession in living memory and emerge triumphant. Musk should be applauded not disrespected.

    • http://www.facebook.com/people/Jeffrey-Loop/1231631426 Jeffrey Loop

      Mr. Dawson, your tinfoil hat is slipping.

    • Kevin Pierce

      CITATION PLEASE

    • Ken Peck

      Dawson,

      You obviously haven’t bothered to learn the facts. You should probably not reveal you interesting beliefs and open yourself to more ridicule until you’ve at least had them vetted by someone living on this planet first.

  • http://www.facebook.com/people/Scott-Rankine/100001994158042 Scott Rankine

    Tesla should be permitted to sell its vehicles directly to consumers and not be constrained by antiquated, self-serving regulations that are inherently opposed to free-enterprise and completely unAmerican. Amazon sells millions of books directly to Texas consumers every year and you don’t hear anyone complaining…

    • jeevmon

      I hear BookPeople and other bricks and mortar retailers complaining all the time about Amazon. Admittedly, sales tax has a lot to do with that, but they do complain.

  • Jack Burgess

    If Mr. Smith (TADA representative) truly believes that the franchise laws “result in better service and options”, then the current dealerships would out compete any other business model. So why would the franchise laws be necessary? I find Mr. Smith’s argument to be disingenuous.

    The franchise laws are a pure economic rent — protectionist and anti-competitive. They are backed by powerful lobbyist groups to serve a well connected few at the expense of all the rest of us often resulting in poor service and higher costs (see the U.S. Department of Justice Study “Economic Effects of State Ban on Direct Manufacturer Sales to Car Buyers” at http://www.justice.gov/atr/public/eag/246374.htm ).

    The narrow Tesla exception to the franchise laws (HB 3351 & SB 1659) should be passed immediately. But ultimately, the franchise laws should be repealed entirely. Lifting the competitive restrictions imposed by these laws will allow new business models to finally come into play in a free market. The businesses that serve their customers well, whether they are traditional dealerships, direct manufacturers, or something else, will thrive. Those that don’t serve their customers well will fail, freeing up resources for other parts of the economy.

    It is completely understandable that TADA wants to keep the current laws in place — no business wants to face increased competition. However, keeping these laws instated is terrible economics.

    • http://crissa.twu.net/ Crissa

      It’s plausible that the dealerships retain higher wages, more expertise locally.

      But that’s not my experience.

  • Mike

    Let them do it.. if you want to “protect” the dealerships and consumers.. put a sunset clause in allowing them to do it for say.. 15 years. If Tesla has grown huge by then, then you change the rules. Small (relatively) businesses who create innovation need to be encouraged!

  • http://www.facebook.com/profile.php?id=717682620 Michael Hunter

    If Smith is so concerned even over a matter of 5, 000 cars as a matter of principal, perhaps we should remove this burden of regulation altogether and allow all car manufacturers to sell direct. It works just fine for other markets. Right now, all I’m hearing is a special interest group wielding government regulation to stamp out free market competition. That does not sit well with me at all.

  • RogerMKE

    Welcome to the world of entrenched special interests!

    As a free market conservative, I find these laws appalling. There is no public safety or consumer protection issue here — it’s purely a play to keep out unwanted competition and drive up costs.

    Wait until the Teamsters start to feel threatened by self-driving vehicles.

  • http://www.facebook.com/dtkeyx Daniel Key

    “emerged from many years [of work], finely tuned by state regulation. To allow someone outside of it is kinda unique.” Yes, as so many things are by state regulations. *sarcasm*

  • Calvinius

    Crony capitalism at its worst, designed to protect the established car companies from competition by newcomers to the market.

    • 12banjo

      I’d be inclined to agree on principle, except that Musk has accepted a lot of taxpayer money and is mighty cozy with the present administration and is a big Obama donor. He’s pushed to get tax credits for his car and has them. Plus, I found his snarling reaction to one bad review at the NYC to be over the top and smacks of arrogance, power tripping, and bullying. One should take a look at that bout of intimidation and learn from it.

      As far as Wall Street chronyism goes, are you sure Musk doesn’t enjoy even more privilege than the Texas dealerships, who already got socked by the Obama administration years back? Remember how the dealerships not liked by the admin ( Republicans) got closed down, and the bondholders of car companies got the shaft in favor of unions. The law of the land is that bondholders are first in line as creditors after bankruptcy. (Although, with what’s in the news, I guess they’re lucky not to have the IRS turned loose on them) I think caution and prudence is the rule.

      • Michael Routh

        That’s a load of crap! Tesla went through the same red tape as any other venture similar to this. The got a small loan, in comparison, to build this car in America instead of running off to a foreign country with super low wages. Musk built, as Consumer Reports say, “the best car EVER!” Scored a 99 out of 100. No other car has ever done that before, gas, hybrid or electric! The fat donors you seem to despise are here in Texas! The pay to play in Texas is notorious. That is how business is done here and has been done for years. And the legislature in Texas has made it all legal. The legislators only get paid $7200/ year, but make up for it with donations form big business. And since its a state matter, feds have nothing to do with that. So if you want to complain about corporate corruption and donors paying to play, look directly at the Texas State Government! They are the worst by far! And it shouldn’t matter you political affiliation, especially when it comes to this, Conservatives, Liberals, Tea Party and Independents should all be outraged, but those who wholly support Perry and the crown in Texas and the nation have blinders on and can’t see the truth, because they believe every word that comes from Perry’s mouth!

        • 12banjo

          Oh, that consumerreports Review was indeed unprecedented. I’d be amazed…except I’m not. I guess CR noticed what happenedto Broder at the Times.

          • http://crissa.twu.net/ Crissa

            You mean, the part where Musk revealed the logs from Broder’s test drive and that he totally lied about it?

          • 12banjo

            Oh, like, *totally* lied? Maybe you, like, totally know more of the story, like, why Broder would plot against Musk and tell such a terrible, awful, dreadful, evil lie? I’d like to know about the nefarious intentions, because it does seem out of character for Broder, who is a stupid tool but is generally slavishly obedient to the Wall Street CEOs as long as they are cool and donate to Democrats.

            From what I read, Broder had bought into the Genius Car built by the Genius god from Corporation Apartheid and was having a blast until the tow trucks had to be called. Was Broder being bribed by Toyota, or something?

            Do tell.

            Anyway, Broder’s been stomped into a quivering greasy spot and he’s an example for anyone who reports on the progress of the car. Brrr. I wouldn’t dare be the one to say that it was less than a ride on Pegasus, lest I annoy the guy on Olympus with his several billion thunderbolts!

            So, you can be amazed by the Consumer Reports. I’m not.

          • hartleymsm

            Obviously you know nothing about Broder’s allegiance to big oil and the fact that he has a long record of being highly critical of any alternative fuel vehicles.

  • Michael Routh

    What the franchise laws also do is limit customer preference. The franchise order the vehicles the way they want to sell them. When I attempted to purchase a new vehicle several time at many franchise dealerships, I couldn’t get the vehicle I wanted equipped the way I wanted even though it was offered on the manufacturer’s web site. The deal would tell me this is they way they come and if I wanted to custom order the vehicle through the dealer, I wasn’t able to receive the incentives offered and because it was a custom order, it would cost many thousands more for the vehicle if I didn’t want it the way they had it. This included dealer add ons and so forth! To buy one the way I wanted would have cut into the profit margin big time, so I went elsewhere and bought a used vehicle of my choosing. I ended up going out of state, but saved about $20K from what the dealer quoted me, and the car had less than 20K miles on it too!

    • 12banjo

      Did you ever consider shopping in La or Ok if things are so dire in our dear sate?

      • http://crissa.twu.net/ Crissa

        He did say he went out of state.

  • Michael Routh

    This should be handled under the commerce clause since it does involve interstate commerce

  • Walters

    Isn’t Texas supposed to be the “pro business” state? Sounds more like the pro lobbyist state!

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