Tesla Motors CEO Elon Musk has one message for the state of New Jersey:
I’m not confusing messages with Colorado and marijuana legislation. Musk wrote an open letter to the people of New Jersey sharing his concern over the recent law, passed by state Congress and signed by Gov. Chris Christie, that bans the direct sale of automobile from manufacturer to consumer–the model under which Tesla operates.
The new law follows Arizona, Texas, Virginia and Maryland who all carry the same legal restrictions. The laws don’t outlaw Tesla Motors specifically. They’re based off clauses and precedents set between dealerships and manufacturers that have existed for decades. The intent was to protect dealerships from the big producers, like General Motors or Ford from undercutting dealers by selling directly to consumers for lower prices.
There was a time when manufacturers needed dealerships, so the rules were mutually beneficial to both sides. Fifty years ago, buying a Mustang directly from Detroit would be difficult, impractical and expensive if you lived in, say, California. So, the manufacturers sold to the dealers in bulk and agreed not to engage in direct sales. In turn, dealers were (and in New Jersey, still are) required to maintain a minimum square footage and have an attached service center. But in 2014, buying a car directly from the source is easy, and that’s why Tesla wants to skip the middle man.
Direct sales aren’t just for Tesla’s bottom lines. Musk notes in his letter to New Jersey that unless you’re working with the Big Three (GM, Ford and Chrysler), selling through a dealership is a great road to nowhere. DeLorean, mostly recognized for its tenure in the Back to the Future trilogy, is a notable example of an American auto startup that couldn’t cut it within the confines of Big American Auto.
So what does this mean for Tesla? The electric motor company has two stores inside high-end malls in New Jersey that must close since they don’t meet the square footage requirement and don’t have service centers. Tesla vehicles don’t need oil changes and regular maintenance like gasoline vehicles, so Tesla isn’t relying on service centers as part of its business model (even software updates are done over the air).
Photo by Phil Denton via Flickr
So who’s getting screwed by this new law in New Jersey? Not Tesla, really. Residents who want the hot new electric vehicle can simply cross the state border, buy one, and drive it home. Such is the case in Arizona where some affluent buyers even pay someone else to drive a new Tesla home from California. Used car dealerships don’t win or lose in this deal since there’s always a market for pre-owned vehicles. Companies like DriveTime, who offer pre-owned vehicles and financing in-house, can fully operate with or without the law.
The real losers in this battle are the people of New Jersey who must continue to buy cars through the conventional, outdated system now legally enforced in the Garden State. Tesla’s are still available in 42 states, but Musk’s company is currently fighting new legislation in Ohio and New York that mimics the law in New Jersey.