4 States That May Be Warming Up to Tesla Motors Inc's Business Model

After the New Jersey's sudden and unexpected decision to ban Tesla (NASDAQ: TSLA  ) from selling vehicles directly in the state earlier this month, three other states are pressing in the opposite direction. And now even New Jersey may be warming up to the idea of Tesla bypassing the franchise system in its state. Here are the latest updates from Ohio, Arizona, Texas, and New Jersey.

Tesla retail store. Tesla's retail stores are often located in high foot-traffic areas like malls.

Tesla was already selling cars directly in Ohio, but the state had proposed to make it illegal. Now, tides have turned. The Ohio Dealers Association caved on Tuesday when they negotiated a deal that will allow Tesla to operate its two existing retail stores and eventually open one more, according to the Associated Press -- but no more than three stores. The Senate panel has already approved the bill.

As one of the final contending states for Tesla's Gigafactory, Arizona has an incentive to make Tesla happy. Doing so could help land the state 6,500 jobs and a $4 to $5 billion project. Among the final four contenders for the project, Arizona is one of two states that currently ban Tesla from selling vehicles directly in the state. The other contending state that bans Tesla is Texas.

The Gigafactory incentive seems to be working. The state is evaluating a bill that would enable the company to sell cars directly in the state. Clearly written in Tesla language, the bill proposes to allow manufacturers to sell directly in the state only if the manufacturer solely sells electric cars. Receiving a unanimous vote in the first committee review, the bill still needs to be reviewed by a second committee, and then move to a full Senate vote.

Dealer lobby groups have quite a bit of power in Texas. But so does Texas Governor Rick Perry, who told Fox Business earlier this week that he was moved by the Gigafactory project.

"Tesla is a big project. It's a $5 billion project. The cachet of being able to say we put that manufacturing facility in your state is hard to pass up," said Perry. He insinuated that this incentive should invoke a conversation in the state about allowing Tesla to sell its vehicles directly there. Texas lawmakers are going to need to decide whether the state will "lead the country when it comes to manufacturing," he said.

New Jersey
Tesla will lose its right to sell vehicles directly in New Jersey as of April 1 after a vote earlier this month from the state's Motor Vehicle Commission committee, which includes the members of Gov. Chris Christie's cabinet, banned Tesla. But a New Jersey lawmaker submitted a bill for review this week that would reverse this action.

Even the dealers don't seem entirely opposed to working with Tesla. Automotive News quotes Jim Appleton, president of the New Jersey Coalition of Automotive Retailers:

We hold as sacrosanct the franchise system. There is no resolution to this problem that allows Tesla to operate outside the franchise system forever. But we're open to accommodations if Tesla can make the case that there's a reason why they can't.

As long as Tesla is supply limited, objections from states to sell its cars directly won't have a negative effect on sales for the company. But as Tesla boosts production and gets closer to becoming demand limited in the U.S., investors will want to see states warming up to Tesla's business model to sell its vehicles directly.

Tesla is currently forced to operate as a gallery-only model in Texas, Arizona, Maryland, and Virginia. As a gallery, Tesla can't discuss price, take orders, or give Test drives. In Maryland, however, Tesla can give test drives.

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  • Report this Comment On March 27, 2014, at 1:26 PM, ffbj wrote:

    It's a bit hard for Republican lawmakers to tout free enterprise and then try to nip it in the bud by using antiquated laws protecting the automobile dealers monopoly on sales of new vehicles.

    The franchise system automobile dealers enjoy is certainly anti-competitive, and it costs more to buy a car through it. However it is law, but we all know how good governments are at circumventing laws,

    heck they are ones that write them. Most probably, in this case, by adding exceptions, Tesla will get in.

    In some form in states where Tesla's sales model is being challenged, arguments of community good, either economic or environmental can be presented, along with Tesla arguments that the sales incentives of the current franchise model put them at a competitive disadvantage, if they sold through current dealerships, and is beyond their financial capabilities to build themselves.

    In the contested states reversals are proceeding apace, and precedents are being set that will eventually form the foundation for exceptions to laws that will allow Tesla's sales model to pass muster in every state.

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Daniel Sparks

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