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New York lawmakers consider bill to ban Tesla’s direct sales

June 21, 2013
Elon Musk Tesla

As Tesla was showing off its latest electric-car tech, New York state lawmakers were considering a set of bills that would overturn a state court ruling and bar Tesla from selling its cars directly from the factory. Tesla co-founder Elon Musk and the company warn if passed the bills would cost New Yorkers jobs — but passage might also force Musk to either escalate his running battle with car dealers or surrender.

As I've written before, Tesla wants to sells it cars much in the way Apple sells its tablets and computers — in well-designed shops with no middlemen. Auto dealers say that goes against decades of state laws and industry practice; they've sued to block Tesla in several states and challenged its plans in many others.

The results have mostly gone in the dealer's favor. Tesla has stores in 10 states and the District of Columbia where it can sell cars to shoppers; in a few more, such as Virginia, Tesla can't sell cars on-site, and has to direct customers to call California. In an unknown number of other states — including Texas, the second-largest market for new vehicles — regulators bar Tesla from selling at all.

The results give the electric car startup a taller hurdle to its business than any other automaker. Take the Washington, D.C., area; while Tesla has a store in downtown D.C., both Virginia and Maryland state regulators have blocked the company from opening similar stores in either state, leaving Tesla with no stores between D.C. and Miami.

In those states where there's some legal question about Tesla's strategy, such as in North Carolina, dealers have been pushing lawmakers to tighten the rules. So far, Tesla has been successful in delaying such measures, but Musk contends the New York bills were designed to slip in at the end of the session.

The New York State Auto Dealers Association, in a form letter it asked its members to send lawmakers last week, said the bill:

"clarifies existing provisions of the franchise law to ensure fair dealings between dealers and franchisors. This legislation will level the playing field and help franchised dealers improve on those sales and job numbers in New York. It will also update the Act to address new circumstances."

Tesla spokeswoman Shanna Hendricks warns that if passed, the bills would close the three Tesla stores in New York and cost jobs: "For auto dealer Associations to claim that restricting competition is in the best interests of the public is wrong and defies obvious common sense."

Should the bills pass, it would mean that Tesla was blocked from two of the three largest markets in the United States, and while many of the New York-area customers could be shunted into New Jersey, it would raise questions about how successful Tesla's strategy will ever be. During the Tesla shareholders meeting earlier this month, Musk called what dealers were doing a "perversion of democracy," and vowed to keep fighting. Musk can take the fight to Congress, and would have a wellspring of popular support, but auto dealers have as much lobbying power in Washington as any advocacy group. Or Musk could cut a deal with one of the major auto dealership chains that would give him access in the dozens of states where Tesla can't sell today. For now, the fight keeps going another round.