Tesla Motors, Inc. Gets Frustrated: "This Is an Affront to the Very Concept of a Free Market"

There's nothing complicated about Tesla's (NASDAQ: TSLA  ) push for a direct sales model -- a model that is completely acceptable in many industries but frowned upon in the antiquated auto industry. But despite the incredibly simple logic behind Tesla's request to sell vehicles directly, there are still a number of protesting parties in quite a few states.

For instance, Tesla currently operates with a gallery-only model in Texas, Arizona, Maryland, and Virginia. Current laws in these states prevent Tesla from taking orders, discussing price, or giving test drives (except in Maryland, where Tesla can give test drives).

The New Jersey Motor Vehicle Commission, or NJMVC, with the sudden and unexpected help of New Jersey Gov. Chris Christie, is the latest to attempt to block Tesla's direct sales model.

Christie's sudden change of heart
This morning, Tesla published a blog post highlighting Christie's sudden and unexplained decision to go "back on its word to delay a proposed anti-Tesla regulation" that would eliminate Tesla's authority to sell cars directly, without an arrangement with franchise operations, or "dealers." Previously, Gov. Christie was going to allow Tesla's defense against opposition to its business model to be handled through a fair process in the legislature.

Tesla isn't happy with Christie's sudden change of heart:

The Administration has decided to go outside the legislative process by expediting a rule proposal that would completely change the law in New Jersey. This new rule, if adopted, would curtail Tesla's sales operations and jeopardize our existing retail licenses in the state. Having previously issued two dealer licenses to Tesla, this regulation would be a complete reversal to the long standing position of NJMVC on Tesla's stores. Indeed, the Administration and the NJMVC are thwarting the Legislature and going beyond their authority to implement the state's laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers. This is an affront to the very concept of a free market.

Tesla's vice president of business development, Diarmuid O'Connell, has also provided this statement to The Motley Fool:

The statute in New Jersey plainly allows Tesla to be licensed to sell cars there. Indeed, the Motor Vehicle Commission has licensed Tesla under that statute ever since October 2012, and any suggestion that Tesla was told "since the beginning" about any problem with its ability to be licensed there is false. The only thing that has changed is the Christie Administration's sudden decision to go around the Legislature in an attempt to enact a rule that the statute doesn't permit. Worse, it has done so without any reasonable notice or even a public hearing.

The simple argument
Tesla's argument for direct sales can be boiled down to something even simpler than the ideal of a free market, however. When it comes to selling an electric car (particularly a Tesla-branded one), consumers require more than specification details -- they often need an entire education on electric vehicles.

Tesla explains further in its blog post: "This model is not just a matter of selling more cars and providing optimum consumer choice for Americans, but it is also about educating consumers about the benefits of going electric, which is central to our mission to accelerate the shift to sustainable transportation, a new paradigm in automotive technology."

Model S. Source: Tesla's official Facebook page.

Spend 10 or 20 minutes in a Tesla store and you'll likely be able to attest to the truth of this argument for Tesla's push for a direct sales model; many visitors to the store have a long list of unusual questions. Further, with the stores often located in high-traffic areas like malls, Tesla takes the opportunity to educate consumers who aren't interested in buying, too. In doing so, Tesla is slowly but surely educating a very large audience -- an effort that may pay off down the road as Tesla introduces lower-cost vehicles.

The opposing argument is simple, too -- although consumers are not at its center. Dealers argue that Tesla's direct sales model could be adopted by other manufacturers, ending a century (talk about antiquated) of franchise car sales. This could threaten both business investments and those made my private businesspeople.

As an American, however, I'd say that competition usually provides greater benefits to consumers and healthier economics over the long haul. I'd guess many other consumers would agree. To me, it's clear which view is capitalistic.

The fact that these two views are being discussed about this matter, in and of itself, is a sign of a liberated market, but a fair legislative process for Tesla's push for a direct sales model should at least be granted.

Should Tesla investors worry about opposing parties like the NJMVC? Developments opposing Tesla's direct sales model are at least worth keeping an eye on. But usually (and rightfully so) consumers win in the long haul.

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Read/Post Comments (23) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 11, 2014, at 4:57 PM, caarecengi wrote:

    Well, the Repubs can forget about Christie being the front runner for 2016 now.

  • Report this Comment On March 11, 2014, at 5:28 PM, michael63636 wrote:

    Please forward to:

    Elon Musk

    Tesla's vice president of business development, Diarmuid O'Connell

    File lawsuits in Federal Districts Courts against persons denying TSLA the right to sell cars directly to the consumer.

    The Ninth Amendment to the US Constitution states:

    "The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people."

    TSLA reserves the right to sell cars directly to the consumer, under the Ninth Amendment.

    File the lawsuit against Chris Christie under 42 U.S.C. § 1983. This statute covers denial of constitutional rights under color of authority.

  • Report this Comment On March 11, 2014, at 9:09 PM, devoish wrote:

    I feel like there is something relevant missing from this story.

    Best wishes,

    Steven

  • Report this Comment On March 11, 2014, at 9:30 PM, CatchTwentyTwo wrote:

    Corruption! You know what else Boardwalk Empire and American Hustle both have in common? They are based in New Jersey.

    As a Republican I am sad to say that Chris Christie is looking increasingly corrupt every day...how can you take the auto industries money and limit industry like this? Come on Christie, pull it together, this is not republicanism. If you don't allow Tesla to sell direct then you are saying that all manufacturers in any industry cannot and shall not sell direct. That would undermine so many businesses.

    Stronger then the storm, stronger then the fire, we closing down the bridge, and keep your electric cars out of Christie Land.

  • Report this Comment On March 11, 2014, at 10:33 PM, TMFTomGardner wrote:

    The competitors should also remember that when you restrict the supply in a free-market system, the corresponding outcome is also to increase the demand (via curiosity and trend-setting iconoclasts).

  • Report this Comment On March 11, 2014, at 10:57 PM, ifool100 wrote:

    Often it's those who proudly proclaim the "American spirit of free enterprise" . . . unless they perceive it a threat to theirs.

  • Report this Comment On March 11, 2014, at 11:54 PM, devoish wrote:

    No car manufacturers are allowed to direct market their cars in New Jersey, or in many other States for that matter.

    The Gov't is supposed to provide a level playing field. More of a Fair Market sort of thing.

    I don't think Ford should be allowed the competitive advantage of not meeting existing law in New Jersey, or Tesla either, for that matter.

    Corruption would be if they were allowed to break the law.

    At least, that's what I think.

    Best wishes,

    Steven

  • Report this Comment On March 12, 2014, at 1:58 AM, michael63636 wrote:

    Daniel Sparks owns shares of Tesla Motors.

    Good.

    I think only those that have a position, long or short, in the companies they write about will put real thought into the information they put forth.

    Those that write about companies they have not taken a position in are B******t artists.

    Money talks and B******t walks.

  • Report this Comment On March 12, 2014, at 6:34 AM, bostontrip wrote:

    What an ARMPIT! Christie, YOUR ARMPIT STINKS!

  • Report this Comment On March 12, 2014, at 6:37 AM, bostontrip wrote:

    Christie, nothing but a puppet! Bought and paid for already. Don't wanna give up them kickbacks. OLD SCHOOL MENTALITY AT ITs WORST. and your armpit still stinks

  • Report this Comment On March 12, 2014, at 7:15 AM, Michael101 wrote:

    Why don't leave the showrooms in the malls and accept orders on the internet? It could be the first automaker ever selling cars on the internet.

  • Report this Comment On March 12, 2014, at 8:29 AM, pondee619 wrote:

    On March 11, 2014, at 9:09 PM, devoish wrote:

    "I feel like there is something relevant missing from this story"

    What is missing is the price for which our Governor was purchased. Just adding another layer of cost to the consumer. The consumer pays and our Governor gets paid. Was the price paid to him directly or to his campaign fund(s)? The truly sad part is, once (if) the cost is uncovered, how low it is. It is one thing to be for sale, it is another to be sold cheap.

    Can't really fault the dealers for buying the Governor, They are just trying to save their jobs, at the public's expense.

    If dealerships were the best way for consumers and manufacturers to buy and sell cars, there would be no need for a regulation mandating them (dealerships). They would just be the natural way of doing business. No regulation would be needed.

    So much for my State being at the vanguard of free enterprise and capitalism. Just another Governor kneeling before a special interest that has money to spend.

  • Report this Comment On March 12, 2014, at 10:21 AM, CatchTwentyTwo wrote:

    Pondee619 - You said it far better than me.

    "If dealerships were the best way for consumers and manufacturers to buy and sell cars, there would be no need for a regulation mandating them (dealerships). They would just be the natural way of doing business. No regulation would be needed."

    Brilliant explanation

  • Report this Comment On March 12, 2014, at 10:25 AM, ilkarim wrote:

    a. So fly to another state and buy one. The consumer base for TSLA can afford it.

    b. Set up a showroom, and do everything except sell vehicles.

  • Report this Comment On March 12, 2014, at 10:39 AM, Fool4Value wrote:

    For any republican, known for constantly droning on and on about capitalism, free enterprise, and how government has too many regulations, to support a regulation mandating an artificially forced middleman into any private company’s sales chain is absolute hypocrisy and obvious cronyism at its worst.

    I guess its OK to blast the Health Care Reform Act as an unconstitutional mandate while supporting a regulatory mandate to make people pay for a Dealer Lobbyist Tax?

    In the early 1900s another innovator, Henry Ford was almost put out of business by the Association of Licensed Automobile Manufacturers, who owned a dubious patent on the “automobile”. They sought to collect a licensing fee for each vehicle manufactured. Ford refused to be extorted. It took years in count but in 1911 Ford finally won and the rest is history.

    This will not stand.

  • Report this Comment On March 12, 2014, at 11:20 AM, TMFDanielSparks wrote:

    Thanks for all the great comments.

    @michael63636: I've always felt owning shares of companies you write about forces you to go above and beyond in your due diligence.

    @TMFTomGardner: great point. consumers will get there way one way or another.

  • Report this Comment On March 12, 2014, at 1:28 PM, timlonely wrote:

    Mercedes buyers used to fly to Germany to take possession of the MB. Tesla potential buyers should order online (due to fact you can't buy in the showroom) and go to the next state to pick it up. Tesla should set up more stores and let their customers order online and if buyers really want it they could go to the next state and pick up their car. I'm sure it will piss off a lot of dealership in NJ. Sure there are issues like where to service the car.

  • Report this Comment On March 12, 2014, at 2:49 PM, ffbj wrote:

    Oh goodie another chance to comment on a Tesla story that involves a right-wing conservative, friendly to business state, like Texas, y'all, cept this one is run by the Mafioso not those branch water and whiskey sippin', cigar smokin', caddilac drivin', everything is bigger and better in Texas, yahoo's. Oh well, to the comment:

    There is so much graft, corruption, collusion,

    political thuggery, in the New Jersey statehouse, administration, as to be legendary, ranking right up there with Tammany Hall. For those concerned about the railroading of this bill through, in this case around, the legislature. Don’t be. Just say what New Jersey politicians say:

    “Fo’get about it!”

  • Report this Comment On March 12, 2014, at 3:43 PM, ewarf wrote:

    @Fool4Value

    Yes, it is OK to blast Obamacare - just as it is OK to blast Christie (a RINO, Republican In Name Only) for forcing any business (Ford, Tesla, GM, etc.) to use a middleman in order for consumers to purchase a vehicle. Those two things are synonymous.

    It is blatantly wrong to force anyone to buy anything against their will, and eventually, it (Obamacare or the auto dealership model of the last 100 years) will be overturned, de-funded, and dismantled.

    With regard to Republicans "droning on about..." limited government, over-regulation, free enterprise, etc., all those things are good for America and consumers in particular, and all that "droning" as you say isn't going to stop.

  • Report this Comment On March 12, 2014, at 5:54 PM, Jesteramongfools wrote:

    Tesla is one of the most interesting stocks that I have ever seen. It's supporters hear no logical argument and any negative argument about Tesla is grounds for a fight. I just wonder what will happens to the stocks of companies with capital intensive businesses when the era of free money comes to an end; but as any Tesla zealot knows, they will just build a flying car and into the future they go. Next stop for this stock is $1,000 a share.

  • Report this Comment On March 12, 2014, at 7:03 PM, devoish wrote:

    Pondee619,

    I think it is the laziest minds that scream free markets and corruption today. It is thoughtless, easy and lazy to imagine there is always a pay off.

    I do not own or short this company, but I bet I have read more about the ruling than any poster on this thread. I have read background concerning why New Jersey requires franchises. I have found and read the testimony of both Tesla and NJCAR before the board that made the decision to require Tesla to meet that standard.

    I had to sift through 40 article hits from the main stream media - by which I mean investment websites and financial news services - that claimed NJ banned the sale of Tesla cars, when they really only required an operating franchise to sell them. It is Tesla's decision to not sell cars within NJ law, or to sell them within NJ law.

    Financial service lying has become without a doubt the biggest single threat to your well being in the world.

    At least, that's what I think.

    Best wishes,

    Steven

  • Report this Comment On March 12, 2014, at 7:09 PM, milfalcon wrote:

    Everyone loves capitalism and the free market until it applies to them, then they lobby.

  • Report this Comment On March 12, 2014, at 7:26 PM, mythoughtis wrote:

    what about tax revenue for state of NJ on sale of gas? what about big oil donations? what about all the real estate rent paid by big oil for those big gas stations on highways, parkways, etc.? don't forget about paying for all that "remediation" of contaminated gas station property! also, remediation of water and soil of property contaminated by big oil! do we drink that stuff or allow our children to play in those parks? the list goes on and on-- that is why the electric car TSLA, solar SCTY and giga factory are truly disruptive to the status quo. I know that this technology does not solve all the problems. Auto companies have varied interests in this direct to consumer fight - why not allow FORD to sell direct? Argument several months ago was that we consumers need the dealers to stand behind warranty if manufacturer goes bankrupt - I thought that was called an insurance policy. What bs! Internet has demonstrated that direct sales model works for certain goods and services while other companies fail. Why not take the chance and allow the regulators ("those really really smart guys/gals appointed for their "expertise") to set forth regulations subject to public comment? This is not a democratic or republican issue it is, as prior commentator observed, of "constitutional" proportion - an American issue. Our laws and regulations adapt to the changes in our county, even if state by state (federalism) -- maybe it is time to adapt and move forward at least in NJ.

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