Would Tesla Motors stumble if it sold its high-end electric cars through franchised dealerships like every other car manufacturer must in Texas? Elon Musk, the company’s CEO and a champion of disruptive technologies, seems to think so.
“If we were to go through them, we would fail,” he told Texas Tribune CEO and Editor-in-Chief Evan Smith last month during an interview at the Texas Transportation Forum.
Tesla’s business model is simple: Sell cars directly to consumers, bypassing the middleman dealers as it does in many states. But a longstanding state law bars that practice in Texas, rankling the company and its fans.
Now, as Musk beefs up his legislative push to carve a Tesla-sized exemption to a law he calls strict and “fundamentally un-Texan,” some dealerships are wondering why he won’t first give them a chance.
If the idea is a gamble, the dealerships would shoulder the risk, they say.
Several dealerships have approached Tesla about selling its $69,000 cars but have had no luck, said Bill Wolters, president of the Texas Automobile Dealers Association.
“This is such a unique situation in which Elon Musk doesn’t want to have competition from other makes,” he said.
Tesla representatives did not respond to multiple interview requests for this story.
What the law prohibits
Tesla currently showcases vehicles at "galleries" in Austin, Dallas and Houston, but because the galleries are not franchised dealerships, state law prohibits employees from discussing the price or any logistical aspect of acquiring the car. That means prospective buyers in Texas must order the car online from the company’s California headquarters.
The customizable cars are delivered in a truck with no company markings, per Texas law, and customers even have to unwrap their new automobiles themselves, because the law prohibits Tesla's in-state representatives from doing, saying or touching anything related to selling or delivering cars.
Dealerships argue that the direct-sales ban protects Texans by ensuring that they have spots to buy cars across the state, not just in highly populated cities where manufacturers, if given the chance to sell directly, might otherwise focus.
“Factories wouldn’t spend the money to put a dealership in Fort Stockton, Texas,” Wolters said.
Tesla, however, calls the franchise system antiquated and a threat to its livelihood. Circumventing the dealers is more efficient, Musk argues. The small electric-car market will struggle to gain a foothold in the state’s current system, he says, because dealerships are too focused on selling gasoline-powered vehicles to tout the merits of the nontraditional models.
What’s more, Musk and others have questioned whether a traditional dealer could succeed in selling his car, because dealerships make much of their money on maintenance — something his highly touted models require little of.
Some dealers might accept that challenge, if Tesla let them.
Under Texas law, Tesla could tap whomever it wanted to run a franchised dealer, as long as the person wasn’t directly affiliated with Tesla. The carmaker could mold that business to its liking. For instance, the company could maintain the feel of its Texas galleries, while actually selling its cars.
The dealer would pay to build the facility, buy any necessary tools and equipment and, of course, purchase vehicles and parts from Tesla.
Applying for a state franchise license is quite easy, Texas officials and industry representatives say. The application is just 12 pages long, and the state processes it within 15 days on average.
“Our dealer network community would probably tell you that the application process is actually very easy to maneuver,” said Daniel Avitia, director of the motor vehicle division for the Texas Department of Motor Vehicles.
The battle with Tesla isn't new
Dealers have sparred with Tesla since 2013, when the Palo Alto, Calif.-based company kicked off its blitz to change the law, calling on customers to park their gleaming plug-in cars outside of the Texas Capitol as a show of support. That year, the company spent between $170,000 and $370,000 on nine lobbyists, according to Texas Ethics Commission filings, but was no match for the well-connected dealerships.
That session, state Rep. Eddie Rodriguez, D-Austin, proposed legislation that would have allowed manufacturers of 100-percent electric cars to sell them directly to consumers, but the dealers rejected the idea. State Rep. Jason Villalba, R-Dallas, proposed a “middle ground approach" — a committee substitute for Rodriguez's bill that would have allowed electric car manufacturers to sell 5,000 cars a year in Texas before the existing auto franchise rules applied. A House committee advanced the substitute, which later failed to draw a chamber vote.
Tesla has added firepower this session. It's spending between $625,000 and $1.18 million on 21 lobbyists – including some particularly high-profile names, state data shows.
No lawmaker has yet filed a bill related to electric car sales, but Rodriguez says he’s working on a proposal that would “allow Tesla to have some stores around the state” — similar to his previous proposal, but with minor differences he’s still ironing out.
“I kind of sense this move towards more freedom to buy things you want to buy, how you want to buy them,” he said. “It is a new kind of technology, and they have a business model that’s very 21st century. Maybe we need to look at this thing a little differently."
And why can't Tesla first try the franchise route? “Once you go that route, you probably can’t go back,” Rodriguez said.
Villalba said he wants Tesla to boost its Texas sales, but won’t propose legislation without some concessions for dealers.
“Until they find a way to work successfully with the dealers here in Texas, by showing some movement one direction or the other, I think it's going to be difficult,” he said.
In his January interview with Smith, Musk said he might be willing — far in the future and only if it made economic sense as the company expanded — to set up a few franchised dealerships in the U.S.
“Anyone who’s been a huge jerk to us," he said, need not apply.
Disclosure: Tesla Motors and the Texas Automobile Dealers Association are corporate sponsors of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.