Autos

Tesla's Direct-Sales Model Runs Into New Jersey Traffic


Tesla’s sleek sedans are getting more exclusive by the day—just taking one for a test drive is turning into a challenge because of lobbying by car dealerships.

New Jersey, where Tesla (TSLA) has two company-owned stores, is the latest state to put the kibosh on the carmaker’s direct-to-consumer business model. Pushed by a strong lobby for old-fashioned car dealers, the state’s Motor Vehicle Commission approved a proposal banning direct sales from auto manufacturers and delayed public comment on the issue until after the vote.

The New Jersey dealers griping about Tesla—like every other car seller in the country—are set up as independent businesses with franchise agreements to sell certain brands. Tesla is a rarity among automakers for selling its cars on its own, with no middleman.

Tesla and its customers have been down this road before. Dealers in Texas and Arizona lobbied for the nation’s toughest restrictions on direct sales to consumers, and the success of incumbent dealers in those states seems to be emboldening dealers elsewhere. The anti-Tesla movement is now mobilizing in New York, Minnesota, and Georgia. The next battle could be decided in Ohio, where Tesla officials are scrambling to reach a compromise on a bill that would keep it from expanding beyond its current two stores in the state.

The argument is that a franchise middleman keeps carmakers from fleecing consumers and protects price competition. Car dealerships, however, might have a hard time holding the moral high ground with consumers. Tesla says its pricing is fully transparent and its service record is stellar.

“I disagree with the characterization that this is disruptive,” Diarmuid O’Connell, Tesla’s vice president of business development, said in a recent Bloomberg interview. “It’s only disruptive from [dealers'] point of view. It is logical and pragmatic from our point of view.”

Tesla accused New Jersey Governor Chris Christie of going “outside the legislative process” and fast-tracking a rule change through the Motor Vehicle Commission. “This is an affront to the very concept of a free market,” the company wrote in a blog post.

Kevin Roberts, a spokesman for Christie’s office, said Tesla was told more than a year ago that it would need to “engage the legislature” on a bill to establish its direct business model. “This administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation and Tesla has been aware of this position since the beginning,” Roberts said in an e-mail.

Among other things, the measure seems to be a great way for New Jersey to divert some much-needed tax revenue to New York and PennsylvaniaDiarmuid O’Connellstates that still have friendlier Tesla policies. For many would-be Model S shoppers in the Garden State, the nearest place to take a test drive is already in King of Prussia, Pa. From the statehouse in Trenton, Christie can get there in less than an hour (so long as traffic isn’t gummed up).

Anyone ready to spend $71,000 on an electric sedan is going to find a way to do so. There’s good reason to suspect that New Jerseyans, in particular, won’t be denied by a bit of drive to get there.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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  • TSLA
    (Tesla Motors Inc)
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