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. 


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