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Third time for Tesla

If at first (and second) you don’t succeed

Tesla is not giving up at the Texas Capitol. In fact, it’s getting more ambitious.

Instead of looking to create any kind of carve-out that favors the high-end electric car maker, legislation filed Friday would simply allow any vehicle manufacturer to sell directly to Texans — bypassing the middleman dealers — in Tesla’s biggest challenge yet to a longstanding state ban on the practice.

The proposal “will allow manufacturers of vehicles any weight, class, size or shape to sell direct to consumers,” said state Rep. Jason Isaac, the Dripping Springs Republican who filed the legislation in the House. “It’s a simple, free-market bill to allow that to happen.”

State Sen. Bob Hall, R-Edgewood, is carrying the legislation in the upper chamber. He and Isaac filed their bills, Senate Bill 2093 and House Bill 4236, on Friday with hours to go until the deadline to submit legislation for the biennial session.

[…]

Dealerships have long argued the Texas direct-sales ban protects customers by ensuring that they have locations where they can buy cars across the state, not just in highly populated cities where manufacturers, if given the chance to sell directly, might otherwise set up shop. The opposition to such legislation also has an ally in Gov. Greg Abbott, who said after the 2015 session that Texas’ automobile sector seems to be “working quite well the way that it is.”

“Tesla’s legislation seeks to unravel the entire franchised dealer system in Texas, in favor of direct sales of motor vehicles by a manufacturer,” Texas Automobile Dealers Association president Bill Wolters said in a statement Friday. “SB 2093 and the reduced competition it will bring about in the new vehicle sales and service market will come at the expense of Texans and Texas.”

“No other vehicle manufacturer is seeking to change the law, and Tesla doesn’t need to either,” Wolters added.

For Isaac, the issue goes beyond Tesla. He recalled having something of an epiphany after recently touring an Amazon facility in Texas and seeing robots zip around with pallets: What if similar technology could one day be used to haul containers up and down the state’s highways?

“I really believe in the next 10 to 20 years we are going to see a complete change in our transportation system,” Isaac said, “and the last thing I want is any barrier to that technology being available.”

See here for previous Tesla blogging. I side with them on this, though as before I don’t expect them to overcome the resistance to their business model. (Neither does bill author Rep. Isaac, but I agree with his assertion that it’s worth having the conversation.) I love how Greg Abbott has sided with the legacy system here. It’s an apt summation of his vision and purpose. Anyway, as with driverless cars, this has been going on since 2013. It’s beginning to feel like a tradition making note of these bills each session. I just hope it’s a tradition that eventually has an end.

Tesla tries another approach to getting access to Texas

If at first you don’t succeed, change your strategy.

Tesla Motors’ Lone Star ambitions won the blessing of the Texas GOP at the party convention in Dallas this month, paving the path towards a possible end to the three years of drama over the electric car manufacturer’s right to sell in Texas.

It’s a dramatic incremental victory for Tesla in Texas, the nation’s second-largest auto market, coming less than a year after the state’s top Republican, Gov. Greg Abbott, told Bloomberg that Texas wasn’t interested in the California car company’s direct sales.

[…]

The coming 2017 session seems poised to provide a breakthrough for Tesla, now that the company has courted the sentiments of Texas republicans.

With a booth at the party’s state convention in Dallas in May, a Tesla rep argued that repeal of franchise law amounted to a truer free market system. And the party agreed, adding a Tesla-friendly plank to its 2016 platform.

“We support allowing consumers in Texas to be able to purchase cars directly from manufacturers,” the addition said.

That will make it very hard for the state’s ruling party to continue to resist the years-long push when lawmakers convene again in Austin in January.

See here, here, and here for some background. Tesla has tried logic, and they have tried lobbyists, so why not try platform management? I hadn’t seen Abbott’s remarkable comment to Bloomberg before now – gotta love that commitment to free-market principles – but if he’s not on board with this, that’s a potentially significant obstacle for Tesla to overcome. Not impossible, of course, but that’s a challenge. I’ve often compared the Tesla/auto dealers fight to that of the microbreweries and beer distributors. That took multiple sessions, and a significant amount of grassroots engagement for the microbrewers to win the fight, even if it was a mostly qualified victory. While this action by Tesla is a step in that direction, I still feel like they haven’t done enough of it yet. We’ll see how it goes when the Lege reconvenes.

Tesla takes its auto dealership fight nationwide

There’s more than one way to get into a market.

Tesla Motors Inc. hopes to capture mainstream auto buyers with its Model 3, an electric car it [recently unveiled] at a price about the same as the average gasoline-powered vehicle, but it may need a federal court ruling to succeed.

The Palo Alto, Calif., auto maker’s direct-to-consumer sales are prohibited by law in six states that represent about 18% of the U.S. new-car market. Barring a change of heart by those states, Tesla is preparing to make a federal case out of the direct-sales bans.

The auto maker’s legal staff has been studying a 2013 federal appeals court ruling in New Orleans that determined St. Joseph Abbey could sell monk-made coffins to customers without having a funeral director’s license. The case emerged amid a casket shortage after Hurricane Katrina. The abbey had tried to sell coffins, only to find state laws restricted such sales to those licensed by the Louisiana Board of Funeral Directors.

For now, Tesla is banking on a combination of new legislation, pending dealer applications and other factors to open doors to selling directly in Arizona, Michigan, Texas, Connecticut, Utah and West Virginia. But the company said it is ready to argue in federal court using the coffin case if necessary.

“It is widely accepted that laws that have a protectionist motivation or effect are not proper,” Todd Maron, the auto maker’s chief counsel, said in an interview. “Tesla is committed to not being foreclosed from operating in the states it desires to operate in, and all options are on the table.”

The ruling in favor of the monks, upheld by the Fifth Circuit Court of Appeals, could give Tesla the precedent it needs to join an “economic liberty” issue currently in dispute between circuit courts in the U.S., Northwestern University law professor John McGinnis said. The Second Circuit Court of Appeals, for instance, has upheld laws that require licensing to sell certain products even if there isn’t a clear reason for it other than protecting existing businesses from new competition.

[…]

Auto dealers are battle-tested and have notched a series of victories along the way. Earlier this year, the Second Circuit Court of Appeals refused to hear a case brought by auto makers that wanted to change laws using a similar constitutional challenge and involving warranty reimbursement levels.

Tesla could find powerful allies. The Federal Trade Commission has repeatedly said franchise laws are anti-competitive. Other organizations agree.

As we know, Tesla has tried and tried again to get a bill passed in the Lege to allow them to operate in their dealerless model, with no luck. I’m sure they’ll be back again next year, but in the meantime it can’t hurt for them to have a Plan B, especially if it solves the same problem for them in other states as well. We’ll see how this goes.

Abbott sides with auto dealers

Sorry, Tesla.

Giving a nod to long-established franchised auto dealerships, Gov. Greg Abbott says Texas doesn’t need to carve out a loophole in its laws that would allow Tesla to sell its high-end electric cars directly to consumers.

“Texas has a very robust, very open, very effective automobile sector that seems like it’s working quite well the way that it is,” the Republican told Bloomberg Radio on Tuesday. “If you’re going to have a breakdown in a car, you need to have a car dealership there to make sure that the vehicle is going to be taken care of. We haven’t seen that from Tesla.”

Tesla’s business model is to sell directly to consumers, bypassing the middleman dealers as it does in many states. But a longstanding law bars that practice in Texas.

[…]

Tesla has refused to call last session a failure. The company says it educated more consumers and lawmakers and will continue its fight to enter the country’s second-largest automobile market. And on Tuesday, it said it wasn’t discouraged by Abbott’s comments.

“As a growing company, we are optimistic about the governor’s pro-business position and hope to be selling direct soon,” Ricardo Reyes, a spokesman, said in a statement.

Abbott’s comments contrast with those of his predecessor. Last year, Gov. Rick Perry suggested in an interview with the Fox Business channel that the state’s dealership laws were “antiquated protections” that should be revisited. Those comments came as Texas was trying to entice Tesla to build its $5 billion lithium-ion battery plant here. The company ultimately chose Nevada.

See here for previous Tesla bloggage. They’ve struck out in the last two legislative sessions trying to get a bill passed to change the franchise model, with no one even sponsoring a bill last time. Abbott may be “pro-business” in some sense, but he surely knows where his bread is buttered. It will be interesting to see what if anything Tesla does in the next session.

Tesla going nowhere

We have entered the period of the legislative calendar where bills that have not been voted out of committee or aren’t scheduled for a vote begin to get pronounced dead. Here’s the Tesla bill’s obituary.

A crusade waged by Tesla Motors CEO Elon Musk to change Texas law to allow his company to sell electric cars directly to customers is on life support at the Legislature.

After getting crushed by state auto dealers at the Capitol two years ago, Musk all but declared war in the name of Tesla, assembling a deep bench of powerful lobbyists and spreading out a total of $150,000 in political contributions to dozens of lawmakers in recent months.

However, bills backed by Musk and his money-losing electric-auto firm have not just stalled in the Senate and House – where unfriendly committees have suffocated the proposals – but appear to be heading in reverse as key legislative deadlines approach.

The latest blow: the senator authoring a bill to allow Tesla to sell directly in up to 12 locations across Texas said recently that he’s abandoned plans to push the measure forward.

“We’re not looking at pursuing the bill at this time,” state Sen. Kelly Hancock, R-North Richland Hills, said.

[…]

Hancock, the senator carrying the Tesla proposal, did not elaborate on why he was burying his proposal. But his sudden cold shoulder reflects the less than enthusiastic public response the bill received in the Senate, where it sits with no champion, no joint authors and no co-sponsors. Tesla never received a hearing, and won’t unless the House moves its version of the bill over, said Sen. Troy Fraser, who chairs the committee considering the legislation.

“Even the members in favor, which were not very many, do not want to have a hearing,” said Fraser, R-Horseshoe Bay, who polled the committee two weeks ago on whether to hold a Tesla hearing.

In the House, Tesla’s bill is actively being worked by an Austin Democrat, but also has been met with resistance. A panel of lawmakers gave the measure a lukewarm reception at a hearing last month in which a Tesla official said the company may have to resort to taking Texas to court to get what it wants.

The House Licensing and Administrative Procedures Committee left the bill pending, and the panel’s No. 2 says he doesn’t think it has enough support to move forward.

“It’s fair to say that Tesla is dead in committee for this session,” said state Rep. Roland Guitterez, a San Antonio Democrat who serves as the committee’s vice chair and opposes the bill. “If there was a willingness to move Tesla, I think we would have taken the vote already.”

See here, here, here, and here for the background. I’ve made the comparison to microbreweries often enough that even I’m tired of it, but keep two things in mind. One is that it took the craft brewers four sessions to get a bill passed; this is only the second session that Tesla has tried. And two, the brewers built a pretty good grassroots organization to bolster their cause. That’s easier for them to do since they have far more customers than Tesla does, but it worked where the spend-tons-of-money-on-lobbyists approach didn’t, or at least hasn’t so far. Draw your own conclusions. In the meantime, I’m sure Tesla will be back again in 2017.

Tesla makes its pitch

It’s a start.

At a packed committee hearing Monday evening, advocates for Tesla Motors told a panel of Texas House members that it was time to bring state car sales laws into the 21st century and allow the company to sell its luxury electric vehicles in Texas.

“The future is here,” said state Rep. Eddie Rodriguez, D-Austin, author of a bill that would allow Tesla to operate up to 12 stores in Texas. “The way in which we buy and sell goods is changing and we must adapt.”

The California-based company builds cars and sells them directly to consumers, bypassing car dealerships — a business model prohibited by Texas law. Tesla currently operates three “galleries” in Austin, Dallas and Houston, but employees there are barred from normal dealership activities like discussing prices or offering test-drives.

Rodriguez told the House Licensing and Administrative Procedures Committee that innovative technology companies like Tesla cannot succeed under the current system. His legislation, House Bill 1653, is similar to deals the company has struck in other states like New York, Ohio and Pennsylvania.

[…]

Opponents pushed back against Rodriguez’s bill on Monday, arguing that it creates two separate systems for car sales — one for Tesla and one for everyone else.

“Everyone should play by the same rules,” said Bill Hammond, CEO of the Texas Association of Business.

“It’s a solution looking for a problem. Tesla’s problems are self-imposed,” said Carroll Smith, who represents Texas on the National Automobile Dealers Association board in Washington, D.C.

See here for the background. I’ve said before that I support allowing Tesla into Texas, and that it wasn’t them that was asking for special treatment, but according to RG Ratcliffe, that’s not exactly true.

First, understand that this is not a fight over whether a car or truck can be sold over the Internet. That already happens through dealerships across the state. Go online, look at the dealer’s inventory and make a purchase.

Second, know this bill is not really about bringing free markets to Texas retail sales of new autos by busting the monopoly of licensed franchise dealers. House Bill 1653 would exempt manufacturers such as Tesla from having to sell through a state licensed franchise dealership, but the manufacturer would be limited to having a dozen or fewer sales locations in the state. Limiting the number of manufacturer dealerships just gives Tesla a competitive advantage over the giant motor companies of Detroit while trying to be unthreatening to the majority of Texas dealerships. Such a carve-out for Tesla is not exactly about bringing consumer choice to Texas, even if Tesla In Texas tries to claim otherwise.

[…]

Whether the Legislature carves out an exception for Tesal or not, this debate is no more about free markets than was the Candy Bin Bill that I once covered.

Once upon a time, bulk sales of beans and grains and candy were found just in health food stores for hippies, not the upscale groceries of today. Only two companies delivered food to the consumer in bulk. One used gravity shoots that dropped product directly into the consumer’s paper bag. The other used bins and scoops for the consumer to measure out how much product they wanted.

The gravity dealer pushed legislation that banned bins and scoops as health code violations. Imagine, their lobbyists said, a plumber coming from auguring out a toilet drain and sticking his unwashed hands into the bin to scoop up food. Ugh! Gross!

The bin dealer countered by claiming the gravity shoots should be outlawed because they were anti-consumer – get too much product and you have to buy it anyway because there is no way to return the excess to the bin. Let the consumer have freedom of choice!

In the end, a compromise piece of legislation passed giving the health department the power to regulate bulk food sales, no matter how it is delivered. Think of the auto dealers as the gravity shoot dealers and Tesla as the bin and scoop. They both want to be regulated, just to their own advantage.

Read the whole thing, it’s a great overview. I don’t get the licensed franchise dealership model, just as I don’t get the three-tier distribution system for beer. It’s great for those who get to participate in it, but it’s hardly a “free market” and it doesn’t do anything for the customers. I say we should let Tesla sell its cars the way it wants to, but that doesn’t mean they should be the only ones. If Ford or Toyota or whoever wants to set up their own shops to sell their cars directly to the public, I don’t see the problem with that. Last I checked, other manufacturers in other industries can do this (do the words “Apple Store” ring a bell?) and the republic remains on its feet. I understand why TADA wants to maintain the status quo, and I understand why Tesla is seeking this limited entrance, but that doesn’t mean it’s the way things ought to be.

Tesla tries again

They’ve brought more firepower to the fight this time, by which I mean “more lobbyists”, but we’ll see if they can break through.

Let the car haggling resume at the Texas Capitol.

A group of state lawmakers on Thursday filed legislation that would allow Tesla Motors to sell its luxury electric cars at as many as 12 stores in Texas, renewing the California-based company’s challenge to a state law protecting auto dealers.

Tesla’s business model is to sell directly to consumers, bypassing the middleman dealers as it does in many states. But a longstanding law bars that practice in Texas.

New legislation — House Bill 1653 and its companion, Senate Bill 639 — would allow manufacturers that have never sold their cars through independent dealerships in Texas to operate the limited number of stores. It’s modeled on deals Tesla has forged in other states, including New York, Ohio and Pennsylvania.

“Free market principles are the foundation of our strong Texas economy,” said state Sen. Kelly Hancock, R-North Richland Hills, who filed the Senate bill. “SB 639 helps sustain a competitive marketplace and gives consumers more choices.”

State Rep. Eddie Rodriguez, D-Austin filed the House bill, along with with Reps. Charles “Doc” Anderson, R-Waco; Jodie Laubenberg, R-Parker; Tan Parker, R-Flower Mound; and Ron Simmons, R-Carrollton.

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.

Tesla calls the traditional dealership model unworkable, because it doesn’t mass-produce its cars — at least not yet. The company allows customers to order customized cars that it later delivers, and it can’t depend on independent dealers to champion its new technology, it says.

“Fundamentally, this company was founded to produce a new technology,” Diarmuid O’Connell, vice president of business development, said in an interview. “No one is as unconflicted as we are in our desire to promote electric vehicles.”

Some Texas dealers have approached Tesla about selling its cars, O’Connell said, and the company has “respectfully declined.”

Tesla and others have also questioned whether a traditional dealer could succeed in selling its cars, because dealerships make much of their money on maintenance — something the company’s highly touted models require little of.

O’Connell said the legislation would let Tesla employees educate Texans about its cars in person, allowing the company to grow its footprint here. He envisions adding stores in Corpus Christi, San Antonio, El Paso, Fort Worth and San Antonio, if given permission.

See here for previous Tesla blogging. The Trib also had an interesting story about the auto dealers’ attempt to get Tesla to work with them; some of that is recapitulated in the story above, but it’s worth reading on its own. Tesla insists that their model doesn’t work with dealerships, though I get a whiff of “the lady doth protest too much” in their argument. I’ve compared Tesla’s efforts to the microbreweries more than once, and one of the things that characterized that saga was that in the end they didn’t get everything they wanted. They scaled their wish list back to the point where they were able to minimize opposition from the big brewers and the distributors, and from there the task became doable. It would not surprise me if in the end Tesla needs to find some form of accommodation with the auto dealers.

Tesla brings the lobbyists

Nothin’ but good times ahead if you’re a Republican-connected lobbyist, thanks to Tesla and the auto dealers.

Locked in a brawl with auto dealers, Tesla Motors CEO Elon Musk is unleashing some of the most powerful lobbyists and consultants in the state to persuade lawmakers to make it easier for his company to sell electric cars in Texas.

Ahead of the legislative session, Musk has assembled an all-star team of politically well connected forces at the Capitol – almost all entrenched with top Republican leaders – to lay the groundwork for a full Tesla blitz come January.

Musk, the California billionaire who also heads the rocket company SpaceX, is pressing the Legislature to allow Tesla to bypass traditional dealerships and sell cars in Texas through its stores.

An attempt failed last session, as Tesla was squashed by a network of state auto dealers and their own team of well-connected hired guns.

This time, according to lawmakers and lobbyists, Musk has revved up the Tesla influence machine to make sure he doesn’t lose again in Texas.

“Tesla is going to move in force to bring significant resources to this debate this session,” said state Rep. Jason Villalba, a Dallas Republican who last session supported the electric-auto maker’s push. “You’re going to see a lot of pressure on these young new members in the Legislature, a lot of movement on the floor and the backrooms to get people convinced this a good deal for Texas.”

Playing the influence game at the Texas Capitol is nothing new for Musk, who employed a team of lobbyists last session and parachuted into Austin on two occasions to personally push for legislation to help SpaceX and Tesla.

He is set to hit Texas again next month – two days after the legislative session starts – to headline a state transportation forum.

But this time, he’ll be coming back to Texas just months after disappointing state officials with a decision to pass up on the Lone Star State for Tesla’s $5 billion lithium-ion battery plant in favor of Nevada.

And the company’s opponents know it.

“They tried to use the giga­factory as leverage to get their foot in the door, but the gigafactory was never coming to Texas,” said Bill Wolters, president of the Texas Automobile Dealers Association. “I can’t imagine what kind of tale they can spin.”

See here for the background. I’ve compared Tesla’s efforts to those of the microbreweries, but this is where the analogy breaks down, since they never had a phalanx of gold-plated lobbyists at their disposal. Anyone in the vicinity of the Capitol next spring ought to keep an eye out on the sidewalk as you walk around – you may see stray $100 bills lying around. We’ll see whose lobbyists are mightier. PDiddie has more.

Tesla is back

I wish them better luck this time, but I wouldn’t expect anything to come of it.

Proposals to allow direct car sales in Texas stalled during the 2013 legislative session, but the Pala Alto, California-based automaker appears poised to rev up efforts to revive the issue as lawmakers head back to work next month.

“We’re not asking to blow up the franchise dealer system,” said Diarmuid O’Connell, Tesla’s vice president for business development. “We are looking for a narrow and reasonable window to be able to promote this new technology ourselves.”

No one has pre-filed a bill promoting direct sales yet, and few in the Legislature have publicly supported the idea. But outgoing Gov. Rick Perry in March called the state’s laws “antiquated” and said it was time for “Texas to have an open conversation about this.”

Of course, Perry said that when Texas was still one of four states in the running to get Tesla’s new battery factory, which eventually went to Nevada. Perry prides himself on being able to woo job creators, and at the height of his Tesla charm offense during a June visit to California, he even drove the company’s Model S around Sacramento.

[…]

Texas Automobile Dealers Association lobbyist Robert Brazie said he believes bills promoting direct car sales will likely be filed before the end of the 2015 legislative session, but that he expects them to garner little support. He said an offer of future Tesla investments would carry little weight in the state, because “when they had a chance to come to Texas, they didn’t.”

Brazie added that Tesla explained its choosing Nevada by pointing to “geography, cost and speed of development,” reasons that had “nothing to do” with either state’s car sales laws.

O’Connell admits that getting the law changed won’t be easy.

“Does the fact that we didn’t site the factory there complicate things? Absolutely,” O’Connell said. “But we’re going to be doing a number of big battery factories in the coming years and we’re going to need new vehicle factories as well, and there’s a certain logic to doing those in Texas.”

See here for past blogging on Tesla. I agree with TADA lobbyist Brazie that one or more bills to allow Tesla to operate will be filed, and I agree that they will go basically nowhere. That’s about the extent of my agreement with TADA on this, as I think they are completely in the wrong. Be that as it may, I’ve previously compared Tesla’s efforts to those of microbreweries, and one implication of that is that I expect them to need several sessions to really get traction on this. Some kind of grassroots outreach would be a good idea for them, too. I’ll keep an eye on this going forward.

No gigafactory for Texas

They’re going to Nevada.

Nevada Gov. Brian Sandoval announced Thursday that Tesla Motors will build a massive battery factory in the state as long as legislators approve tax breaks and other incentives worth up to $1.3 billion over 20 years.

Sandoval revealed terms of the deal he negotiated with the electric car maker at a Capitol news conference attended by Elon Musk, CEO of California-based Tesla. The governor called it a “monumental announcement that will change Nevada forever.”

Sandoval didn’t mention the total value of the package and his remarks seemed intended to pre-empt critics who will see it as too generous.

“Is this agreement good for us?” the governor asked. “This agreement meets the test, by far.”

Later, he said that for every $1 Nevada gives up, the project will produce $80 in economic impact.

“Even the most skeptical economist would conclude that this is a strong return (on investment) for us,” Sandoval said.

Musk told the audience that Nevada didn’t offer the biggest incentive package among the five states that tried to lure the factory, though he didn’t specify which did among California, Texas, Arizona, New Mexico and Nevada.

The most important considerations were not incentives, he said, but rather a high confidence that the factory will be ready by 2017, followed by assurances that batteries can be produced cost efficiently.

Later, Musk told reporters that Tesla would stop looking for another state as a backup, in case Nevada did not come through. “Nevada is it,” he said.

Well, I’m a bit skeptical of that 80-to-1 return claim, but I’m not an economist, so there you go. Texas was in the running for this, but there was a big obstacle in the way.

Despite the state’s advantages, the company had indicated that Texas’ long-standing state laws protecting auto dealerships – a challenge to Tesla’s business model – did not help the state’s case. Texas laws prevent car manufacturers from selling directly to Texas consumers, as Tesla does. Texas requires manufacturers to sell their cars through tightly regulated franchised dealers. A few other states restrict Tesla sales through franchise laws, but Nevada is not one of them.

I’ve blogged about that before. I wonder if this will have an effect on the effort to change that law in 2015. Because of this, Texas was thought to not be a serious contender for the gigafactory. I won’t claim to be a big fan of the money that was being thrown at Tesla by the competing states, but there’s no reason to keep that archaic setup for auto sales. The Rivard Report, the LA Times, and Think Progress have more.

It’s not Tesla that’s asking for special treatment

A couple of auto dealers take to the op-ed pages to argue that up is in fact down.

The motor vehicle franchise laws in place do not in any way hinder innovation; instead they foster the competition that benefits consumers.

One motor vehicle manufacturer, Tesla Motors, has been seeking an exemption from the franchise laws that require new motor vehicles sold in Texas be sold through a franchised dealer. Franchise laws exist to prevent monopolies and promote competition in vehicle pricing and service to the consumer, provide for the efficient distribution of vehicles and service across the wide geographic area that is our state, and provide a local presence where Texas consumers can have service, warranty and recall work performed even in cases when a manufacturer ceases to do business.

Nothing in state law is currently preventing the delivery of new Tesla vehicles from California to the citizens of the state of Texas who wish to purchase them online. Nothing in state law prevents Tesla from using the exact same model it is using today, with gallery stores and service facilities at other locations, so long as any retail presence is operated through a franchised dealer of Tesla’s choosing.

As business owners, we can tell you first-hand that franchised motor vehicle dealers in Texas are more than eager to help Tesla succeed. In fact, numerous Texas dealers have contacted Tesla seeking an opportunity to retail their vehicles subject to Tesla’s desires. Not only will the franchised dealer absorb any capital outlays required for the Tesla model, but we also believe the franchised dealer can help Tesla sell many more vehicles over the long term.

Increased sales volume without the cost burden is a winning business model, which is why every other major auto manufacturer who sells in Texas participates in the model (not to mention those who already sell electric vehicles).

So why the request for special treatment just for Tesla?

Considering the value of the consumer-protection based system currently in place and the fact that Tesla Motors now has the opportunity to sell its cars to Texans, we do not see any compelling rationale to provide special treatment for Tesla. Other manufacturers produce electric vehicles.

See here and here for the background. Sorry, but it’s the dealers that are asking for special treatment by forcing Tesla to include them in their business model. Plenty of manufacturers are allowed to sell directly to customers. I get the dangers of vertical integration, but the existence of Apple stores doesn’t seem to have hindered innovation in the smartphone market. How would letting Tesla sell directly to customers affect innovation in the automobile market? Frankly, if anything I’d expect it to spur innovation, as it might force a reconsideration in how cars are marketed, sold, and maintained. I’m sorry, but someone who doesn’t benefit from the current setup is going to have to explain to me why it shouldn’t be changed for me to accept the plausibility of that argument.

Tesla’s stealth visit to San Antonio

May mean something, or it may not.

A pair of executives from Tesla Motors Inc., the electric carmaker that’s scouting a location for its planned $5 billion “gigafactory,” secretly met here Wednesday with top city and county officials, a person close to the discussion said.

The meeting came less than a week after the San Antonio Economic Development Foundation submitted a proposal to the Palo Alto, Calif.-based manufacturer for the factory, which will produce lithium-ion batteries for Tesla vehicles and battery storage units for use in homes, commercial sites and utilities.

While details of what local officials offered Tesla weren’t available, the proposal included a separate section for CPS Energy, positioning the city-owned utility as a potential partner for the company.

“It appears San Antonio is back in the game for the project,” the source said, acknowledging the city’s chances had seemed to be remote — until recently.

[…]

A Tesla plant, which the company wants producing battery packs within three years, would need between 500 and 1,000 acres with 10 million square feet of production space. The factory would create 6,500 jobs.

The company has said that with its partners, it plans to produce 500,000 lithium-ion batteries annually by 2020.

Late Tuesday, Castro used Twitter and Facebook to stake out his position on a state law that prohibits Tesla from selling its all-electric vehicles directly to Texas customers.

“Today, Tesla is prohibited from selling its cars directly to consumers in Texas. State law requires that they be sold through a dealer. I respect our state’s auto dealers, but that law ought to change,” Castro wrote on Facebook. “That’s like telling Apple it can’t sell its products at an Apple Store but has to sell them through Best Buy or Walmart instead. Makes no sense.”

In a Wednesday interview, he said he agreed with Gov. Rick Perry that the law should be changed. Lucy Nashed, a spokeswoman for the governor’s office, confirmed Perry has no plans to call a special session to address the issue.

It’s unclear whether that’s a deal breaker for Tesla. Arizona lawmakers currently are deliberating changes there that would allow Tesla to circumvent dealerships and sell directly to the public.

See here for the background. I will note that even if Perry called a special session to address this issue there’s no guarantee a bill would pass. The Texas Automobile Dealers Association pushed back pretty hard on this during the last legislative session, and they surely won’t go away any time soon.

Chances are excellent that Red McCombs could get Gov. Rick Perry on the phone.

So I asked the San Antonio billionaire last week if he’d called the governor about safeguarding the state law requiring automakers to sell their vehicles through franchised dealerships, the bedrock of McCombs’ empire.

[…]

As one of the state’s biggest auto dealers, McCombs has a dog in this fight, and he’s a big-time Perry supporter. Just since 2008, he’s written checks totaling at least $302,500 to Perry’s gubernatorial and presidential campaigns.

So the question about calling Perry didn’t seem weird. But it did turn out to be awkward, for me anyway.

A couple of long seconds of silence on McCombs’ end of the phone line.

Then the 86-year-old answered in a low rumble: “No … Why would I?”

In other words, he saw no need. In fact, earlier in the interview, McCombs had talked about the franchise law as immutable.

“That is as set in stone as it can be,” he said. “It’s as sacred as Paul’s letter to the Corinthians.”

[…]

Even with the tantalizing prospect of the gigafactory, [Rep. Lyle] Larson thinks a measure allowing Tesla to make direct sales in Texas would fail once again.

“I do not see the chance for an option allowing Tesla to sell direct,” he said. “I don’t see any appetite for it.”

Yeah, you could say that. Unlike the microbreweries, my go-to analogy for Tesla, the number of people that have used Tesla products is very small, basically negligible in comparison to the existing players. I just don’t think they have the lobbying muscle or the grassroots support just yet to overcome the resistance they’re going to get from TADA and the many people who will be naturally sympathetic to the status quo. I absolutely think it will happen eventually, but it will take time and outreach on their part to familiarize people with what they’re asking and why it’s a good thing. The battery plant story is a great start, but that’s all it is. Besides, as Jalopnik notes, the proposed factory Tesla wants to build is itself no sure thing. Assuming it is, Tesla is going to have to decide where to build that factory without any assurances from Texas that the laws about selling cars will be changed. There just isn’t the time for it.

Tesla and Texas

Tesla Motors currently can’t sell its cars in Texas via its preferred model of direct sales to consumers. Its attempts to modify state laws to allow for direct sales went nowhere last session, blocked by fierce opposition from the Texas Automobile Dealers Association. They’re now looking for a place to build their new batteries. Why would they choose to do that in Texas given all that?

Now, those restrictions, which rank among the country’s strictest, could harm Texas’ chances of landing the $5 billion lithium-ion battery plant Tesla plans to construct by 2017.

In late February, the company announced that Texas was one of four states — along with Arizona, Nevada and New Mexico — in the running to house the wind- and solar-powered “gigafactory,” which Tesla says would span as many as 1,000 acres and employ about 6,500 people.

[…]

Tesla officials, however, have indicated that Texas’ tough restrictions on the company’s sales do not help the state’s case.

Alexis Georgeson, a company spokeswoman, said she could not specifically address how Tesla would weigh various factors in its selection process, but she said comments from Diarmuid O’Connell, Tesla’s vice president of business development, properly sum up Tesla’s view of Texas’ restrictions.

“The issue of where we do business is in some ways inextricably linked to where we sell our cars,” O’Connell told Bloomberg this month. “If Texas wants to reconsider its position on Tesla selling directly in Texas, it certainly couldn’t hurt.”

Texas laws prevent car manufacturers from selling directly to Texas consumers, and they require manufacturers to sell their cars through tightly regulated franchised dealers.

[…]

Tesla currently showcases vehicles at “galleries” in Austin and Houston, but 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 from Tesla’s headquarters in Palo Alto, Calif. The cars are then 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.

“It’s incredibly inconvenient,” Georgeson said. “Really what they are doing is making it tougher for customers.”

See here, here, and here for the background. I drew an analogy to microbreweries and their multi-session fight to get antiquated beer distribution laws changed. I still think that’s an apt comparison, but if it takes Tesla as long as it took the microbrewers to achieve their goal, it’ll be well past the time Tesla intends to have that factory up and running before they succeed. My guess is that they’d like some assurance of a quicker resolution before they’d be willing to commit to building here. To his credit, Rick Perry supported HB3351, the bill that would have done the overhaul Tesla wanted. Wendy Davis did not say she would support such a bill in 2015 – I seriously doubt she’d veto it if it passed on her watch – though she supported the general idea. Greg Abbott typically had nothing to say. So we’ll want to keep an eye on what individual legislators and candidates are saying. My guess is that Tesla is in for a fight that will take more than one more session to resolve. Whether that affects their decision about where to put that battery gigafactory remains to be seen.

Auto dealers versus Tesla

I’m pretty sure the dealers will win this round, but I doubt they can win in the long run.

Texas auto dealers and their lobbyists in Austin are targeting legislation that would allow Tesla Motor Inc. to sell its all-electric vehicles directly to customers — upending a longstanding protection of dealers in state law.

After quickly compromising on or abandoning interest in other bills, dealers have dug in their heels after a Texas House committee this week advanced a bill that would permit the Silicon Valley-based company to circumvent a mandate that automakers sell new cars and trucks only through franchised dealers.

“They’re looking to take the franchised dealer out of the loop,” said April Ancira, vice president of operators for the Ancira Auto Group.

“What this does is it takes a lot of competitive pricing away,” she added. “You would only have the manufacturer, and there would be no dealers to compete, which is always better for the consumer in the end.”

[…]

Lobbyists with the Texas Automobile Dealers Associations concede that Tesla, which sells all-electric sedans, is a small niche player. But dealers fear even the narrowest of legislation could open the door to other manufacturers that would like to cut out the middleman.

“It’s an easy gateway for the manufacturers to start piling in,” Ancira said. “All of the sudden, you see the franchised dealer model disappearing, and that could spread into other arenas outside of the automotive industry.”

[…]

Citing an Austin Business Journal survey that found 86 percent of respondents support allowing Tesla to bypass dealerships, the company said the ability to sell directly to customers “is the best chance that a new electric car company has of succeeding.”

“For (TADA) to claim that restricting competition is in the best interests of the public is wrong and defies obvious common sense,” [Tesla CEO Elon] Musk said in a statement.

He has visited the Capitol several times recently, hoping to foster support for the legislation among state lawmakers.

Sen. Leticia Van de Putte, D-San Antonio, said she has met with Musk and said he was persuasive. Still, “I’m really uncomfortable at this point,” she said. “I’m not convinced.”

I’ve compared Tesla to microbreweries, and it’s in the response from the dealers that the parallel becomes apparent. Tesla’s a small new player in a niche market that has a different business model that doesn’t fit with what the big established players do. More to the point, existing decades-old laws preserve the status quo and make it impossible for the new player to operate the way it wants to. The new guys go to the Legislature to get a bill passed that would carve an exception into the laws for their business, and the established guys go ballistic. My favorite part is where the established guys claim that by restricting the ways that consumers can buy the products they all make, they’re protecting the interests of the consumer. In the meantime, legislators who aren’t terribly familiar with the new business model but who hear a lot from the established guys about how dangerous this newfangled stuff is, are hesitant to take action. As they say, it’s deja vu all over again.

But here’s the thing. The new guys have tapped into something that a small but growing number of people want, and those people are passionate about it. They don’t accept that what they want is dangerous, and they have no desire to be “protected” from what they want. Over time, the new business model becomes more familiar, and more legislators come to understand and support it. It takes a few sessions, and a lot of grassroots organization, but eventually enough pressure builds up to force a way in for the newbies.

Obviously, I’m projecting for Tesla. I’ve not heard of a movement to replicate what the fans of craft beer have done as yet. But I think Tesla is smart enough to recognize that this is the best way forward for them, and like the microbreweries they benefit from the fact that the existing setup is archaic and stifling and makes no sense. It’s hard to defend the indefensible, and sooner or later something has to give. I don’t know how this will play out, but my money is on Tesla, or whoever succeeds them in the marketplace, eventually winning out. It’s just a matter of how long it takes.

What does Tesla Motors have in common with microbreweries?

Both are forbidden by archaic laws from selling their wares direct to the public.

Electric car maker Elon Musk wants to bet big on Texas – but he’s having trouble getting his chips on the table.

Musk, a South African-born entrepreneur and the CEO, chairman and co-founder of Tesla Motors, wants to sell Tesla’s electric cars directly to Texas consumers. But to do so, the company must win an exemption from state antitrust laws that regulate the relationship between car dealers and manufacturers.

State laws prevent car manufacturers from selling directly to Texas consumers and require that manufacturers operate through a tightly regulated franchise system. Texas’ protections for car dealers are among the strongest in the country. The Texas Automobile Dealers Association says the rules protect consumers, and ensure the livelihood of Texas auto dealerships. Tesla and its supporters say the laws are an antiquated legacy, and that the ability to sell directly to customers is crucial to the company’s livelihood.

“Everyone told us when we were getting into this that we’d get our ass kicked,” Musk told reporters at a press conference on Wednesday. “Well, I guess there’s a good chance that we will get our ass kicked. But we’ll try.”

Two bills — Senate Bill 1659, by state Sen. Craig Estes, R-Wichita Falls, and House Bill 3351, by state Rep. Eddie Rodriguez, D-Austin — would carve out narrowly tailored exemptions from state franchise law for Tesla. Under the measures, American manufacturers of electric cars that have never previously had franchised dealerships could sell cars directly to customers.

But the bills’ critics, including some legislators, ask why Tesla can’t conduct business like other, established car companies.

“There’s nothing prohibiting this company, in the future, from finding a dealership to represent them,” said state Sen. Dan Patrick, R-Houston. He argued that weakening the dealer model would hurt car owners.

“I would be wary, as a consumer, of buying a car from a manufacturer that may or may not be here in six months.”

I’m just curious – has anyone ever explained to Dan Patrick how capitalism works? What he said is true of any product or service on the market. Last I checked, auto dealerships can go belly-up, too.

Currently, Tesla has “galleries” in Austin and Houston. Employees there are legally prohibited from discussing the price or any logistical aspect of acquiring the car. Consumers who want to purchase the vehicle have to order the car from Tesla’s headquarters in Palo Alto.

The cars are then delivered in a truck with no company markings, per Texas law. Once delivered, Musk said, the customers even have to unwrap their new automobiles themselves, because under the law no representatives of Tesla’s in the state are allowed to do, say or touch anything related to selling or delivering cars.

To put it bluntly, this is nuts. Laws like these, in the automotive industry and the beer-making industry, do nothing for consumers, but do ensure a tidy piece of the action for a privileged set of middlemen. I can’t imagine too many people will want to buy a car direct from a manufacturer – most of us have at best a vague idea of what we want in a car, which is why we go to dealerships and take test drives and so on – but I can’t think of any reason why someone who does know what she wants should be prevented from doing business directly with the source. If Dan Patrick or anyone else is truly concerned about the risk such customers may be exposing themselves to, they can insist on including some strong consumer protections in the law that Tesla is seeking. Ideally, the exception Tesla is seeking to carve out really ought to be a general one for all automakers, but the bills are narrowly tailored to just them because everyone is already freaking out about it. The Lege can be a very weird place sometimes. As with the microbrewers, it will take Tesla more than one session to get enough buy-in on this to get a bill passed. I hope they’re in business long enough to see it happen, if only so Dan Patrick doesn’t get to say “I told you so”. See also this Trib interview with Elon Musk, and Texas Politics has more.