Susan Abplanalp of West Lake Hills flew to San Francisco last year to test drive a car before buying it over the Internet.
Not just any car: the Tesla Model S, a $70,000 to $130,000 electric car that got Consumer Reports’ highest marks ever.
The manufacturer, Tesla Motors, is battling powerful auto dealers around the country, including in Texas, trying to block how it sells cars — even as Texas and three other states compete for the company’s $5 billion battery plant and its 6,500 jobs.
Selling directly to consumers in Tesla-owned dealerships, as Tesla wants, would cut out franchised dealers who are the middlemen between car manufacturers and consumers.
The Texas Automobile Dealers Association last year easily defeated California billionaire Elon Musk’s effort to exempt his Tesla Motors from selling through dealerships, but auto dealers are suddenly playing defense because of the possibility of Texas landing the plant and its jobs.
“I think all this talk about 6,500 direct jobs has gotten the Legislature’s attention,” said state Rep. Eddie Rodriguez, D-Austin, who carried Tesla’s exemption bid last year. “That’s what my colleagues are talking about.”
The association responded last month with a letter to all Texas lawmakers saying the law shouldn’t be changed for “any special interest or potential project.”
It is an issue that pits technological innovation against Main Street, if lobbying hyperbole is to be believed, and underscores how government can affect the marketplace.
“For us, it’s a matter of life and death,” Musk told Texas lawmakers during his failed attempt last year to be exempted from the state law.
Bill Wolters, president of the Texas Automobile Dealers Association, raises the specter of dealerships, particularly in rural Texas, going out of business without legal protection against factory-owned dealerships: “All the Main Street merchants are gone except the car dealers.”
Consumers are caught in the middle.
“How hard is Texas going to make it to buy a Tesla?” Abplanalp said last week. “They made it really hard for me.”
New sales model
Tesla Austin at The Domain is what the company calls a gallery.
Customers can look at a car but, under state law, can’t test drive it. The Tesla employee can explain the technology but cannot discuss price, take orders or direct the customer to the company’s website.
Instead, the customer goes home to order the car online.
Periodically, Tesla is permitted to host limited test-driving opportunities in Texas. Abplanalp said she was unaware of that option when she combined her test-driving trip to San Francisco with a business trip.
“The average person isn’t going to spend that kind of money without test driving the car,” she said.
Texas is one of four states — Maryland, Virginia and Arizona are the others — that prohibit Tesla’s direct-sales model. But this year, New Jersey, New York and Ohio, at the behest of auto dealers, are also trying to limit Tesla’s sales approach.
The battle over how Tesla wants to sell cars became muddled with the company’s February announcement that it wants to build a $5 billion battery factory either in Texas, New Mexico, Nevada or Arizona.
Arizona lawmakers are considering changing their law as part of their incentive package to land the battery factory. Such a law isn’t an issue in Nevada, and Tesla has no stores in New Mexico.
Gov. Rick Perry called Texas’ law antiquated last month and suggested it should be changed, but his staff said he has no plans to call a special session on the topic. So, the Legislature won’t convene until January, probably after Tesla has named a winner in the battery plant sweepstakes. But the competition raises the issue anew as Texas cities vie for the jobs.
For example, San Antonio Mayor Julián Castro tweeted that the law should be changed when Tesla officials recently met with San Antonio leaders.
A niche player
“They are the world’s greatest at publicity and promotion,” Wolters said of Tesla. “GM sells more in a day than Tesla does worldwide in a year.”
Indeed, Tesla is niche player in auto sales.
In his testimony last year, Musk estimated that Tesla would only sell 1,000 to 1,500 cars out of the 1.3 million new vehicles sold last year in Texas.
Tesla expects to increase its worldwide sales to 35,000 from 22,000 this year, but, by building its own lithium-ion batteries, the company hopes to cut the price of its next generation of cars in half and eventually sell as many as 500,000 vehicles worldwide. By comparison, global vehicle sales topped 83 million last year.
Despite Tesla’s niche status, Wolters argues that exempting Tesla from having franchised dealers could eventually open the door to other manufacturers demanding to own and operate their own dealerships.
He says there are 1,247 franchise dealer stores, which are primarily family-owned, in 284 Texas cities and towns.
Without franchise laws, Wolters said, the U.S. could eventually lose two-thirds of its franchised dealerships because car manufacturers would only locate factory-owned dealerships in the most profitable markets.
In Texas, he said dealerships are particularly at risk in the 163 Texas towns with fewer than 15,000 people.
To doubters, Wolters points to the bankruptcies of General Motors and Chrysler when the courts suspended the franchise laws and allowed those manufacturers to terminate about 2,000 franchised dealerships without cause.
“Those were viable businesses,” he said.
Wolters said franchised dealerships, with $63 billion in annual sales, make investments in their communities every year.
By the time the Tesla battery factory is scheduled to reach full production, Wolters said, the state’s franchised dealerships will have invested an additional $3 billion — with another $1 billion from the dealers’ suppliers and vendors — without any state or local incentives.
On the other hand, Tesla likely can command property tax abatements from local officials and financial assistance from Texas.
Musk and Tesla Motors offer the sheen of celebrity and cutting-edge technology. Musk, who made his initial fortune with the online payment provider PayPal, has been compared to the late Steve Jobs as an innovator.
Musk is the founder of SpaceX, which is ferrying supplies to the International Space Station and is considering building the first commercial orbital launch site in the world. South Texas is one of several locations in the running for what Musk describes as a commercial Cape Canaveral.
As for Tesla, Musk compares it to Dell Inc. when it started out.
“Dell Computer wouldn’t exist if Michael Dell had not been able to go direct when he started out,” Musk testified last year. “Cause he was just some kid in a dorm.”
Of course, the billionaire Musk is no kid in a dorm, but he told lawmakers that Tesla’s groundbreaking technology is the hurdle to selling the car through dealerships.
He and others argued that Tesla’s sales are too small to justify a stand-alone franchise dealership and in established dealerships the sales staff, working on commission, would favor easier-to-sell gasoline vehicles.
“I believe the only model for a small company with a new technology is the direct sales model,” Musk said.
Wolters disagreed, saying Musk can accomplish his goals under existing law.
He said car manufacturers are allowed to finance and control how a dealership operates as long as an investor is the dealer who eventually has the right to purchase the dealership.
Wolters said the investor wouldn’t have to be a Texan and could be on Musk’s executive team in California.
Diarmuid O’Connell, Tesla’s vice president of business development, said Wolters’ suggestion is an exception in the law designed to help the “historically underrepresented” by diversifying the state’s car dealers.
“The last thing we are trying to do is sneak in through the back door,” O’Connell said.
Finally, Wolters argued that Tesla would be an attractive investment for many established car dealers.
“I have dealers today who would build him a stand-alone dealership to sell that brand,” he said.
The state’s automobile dealers are a powerful force at the Capitol.
According to Texans for Public Justice, dealership interests contributed more than $2.5 million in Texas’ 2012 elections, including six-figure sums to Perry, Attorney General Greg Abbott, House Speaker Joe Straus and Lt. Gov. David Dewhurst.
More importantly, every lawmaker has car dealers in his or her district.
Rodriguez said he will reintroduce legislation in 2015 that would allow Tesla to sell cars in Texas without going through a franchise dealership.
He said compromises being considered in Ohio and New York could be a blueprint. In both instances, auto dealers and Tesla have agreed the company would limit the number of its sales outlets.
Tesla’s decision on locating its battery factory could be a pivotal factor in the legislation’s chances.
“If Tesla decides to come to Texas, I think it’s going to be difficult for us not to address this,” Rodriguez said.
And if Tesla goes elsewhere?
Rodriguez said there might be some second-guessing about failing to compromise last year.
“If we had done that sooner,” he said, “we might have had a better chance.”
©2014 Austin American-Statesman, Texas