Tesla Motors, Inc. Makes Big Progress in Dealer Fight

Tesla wants to bypass the dealer system. But it's not yet clear whether all fifty states will comply.

Jun 17, 2014 at 4:16PM

In many states, Tesla (NASDAQ:TSLA) is battling it out with dealer lobbyists and antiquated legislation. The latest news on the electric-car maker's efforts to bypass the franchise system and sell its vehicles directly to consumers comes from New York and New Jersey.

Tesla Store

Tesla retail locations are often located in high foot traffic areas, like malls. Image source: Tesla Motors.

New York
There's no more reason to worry about Tesla's stores in New York. Pro-Tesla legislation has passed. Tesla can now continue to operate its five stores in the state. The bill even says that it will enable "[a]dditional Tesla locations."

Up until yesterday, there was only an agreement between Tesla Motors and New York State that said the California-based manufacturer of the Model S could continue to operate its five retail locations. While the agreement was a relief in light of proposed legislation in the state set to block Tesla's direct sales, it wasn't yet an official bill.

While it was a win for Tesla when Gov. Cuomo signed the bill yesterday, the legislation also ensured that auto manufacturers that are not producing purely zero-emission vehicles still couldn't bypass the dealer system.

New Jersey
Seventy-seven to zero, and one abstention. The New Jersey Assembly has spoken clearly: Tesla should be allowed to bypass the dealer system. But can the bill that could potentially allow Tesla to again sell its vehicles in New Jersey, and also open two additional stores beyond its two current showrooms, make it beyond the Assembly?

The bill's fate with the Senate is less certain. At the hands of lobbyists, even a bill rational enough to inspire a unanimous vote can get canned. It wasn't long ago that we witnessed the power of New Jersey auto dealer lobbyists in their efforts to stifle Tesla's potential in the state. Tesla was banned from selling its vehicles in the state after the Christie administration decided to circumvent the legislation process and pass anti-Tesla legislation. Auto-dealer lobbyists in the state "cut a backroom deal with the Governor," Tesla asserted.

Following the sudden last-minute decision to ban Tesla in the state, Tesla CEO Elon Musk took to the company blog in a rant that also served as a public relations move, taking advantage of the company's massive following, to put pressure on the state.

Perhaps Tesla's aggressive PR will pay off.

Model S Twitter

Model S. Image source: Tesla Motors.

The argument for Tesla to sell its vehicles directly and bypass the dealer system is very straightforward and rational. So, investors shouldn't be worried about Tesla's future retail business. But the faster states accept the fact that the antiquated legislation that protects dealers will hinder Tesla, the better it will be for Tesla shareholders.

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Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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