Auto franchise lobby groups have considerable power in many states. For instance, one state dealer group's power was evident in the sudden and unexpected move by the New Jersey Governor Chris Christie in early March to ban Tesla (TSLA -0.94%) from selling its cars directly in the state. But what happens when an opportunity for 6,500 jobs clashes with requests from a dealer group? That's the situation Arizona finds itself in, and it looks like Tesla may come out a winner.
Tesla stores are often located in malls, where the company sells vehicles directly. Source: Tesla's official Twitter feed.
Fighting for the Gigafactory
Tesla announced during its fourth-quarter earnings call that it will be building a gigafactory, or the world's largest factory for producing lithium-ion batteries. A week after the call, Tesla revealed more specific plans for the massive center. Among the details shared in the report, Tesla said it had narrowed down the possible states for the site for the factory to four: Arizona, Nevada, New Mexico, and Texas. But if Arizona or Texas, the two states among the four that ban Tesla from selling vehicles directly in the state, want a better chance at landing this $4 to $5 billion investment, they may have to pass bills that allow Tesla to sell vehicles directly in their states to incentivize the U.S. auto manufacturer.
It looks like Arizona is planning to do exactly this. A bill approved by the Arizona state Senate committee Wednesday would enable Tesla to sell vehicles directly in the state without a dealer network.
Unsurprisingly, auto dealer lobbyists aren't happy. Associated Press quotes Alliance of Automobile Manufacturers lobbyist Mike Gardner:
Tesla is asking for a special exemption for them to have a separate set of rules for their electric cars. What we're opposed to is allowing one of our competitors to go around the dealer network and sell directly to consumers. We think we should all be treated the same.
But House Bill 2123's sponsor Rep. Warren Petersen argues that opposing dealers and manufacturers are "trying to stifle innovation," according to the Associate Press. The old laws are "archaic," he says.
Peterson sent Tesla a nod in an interview with Arizona's 12 News regarding the bill:
We welcome [Tesla]. That was really the purpose for the Bill we passed through committee this morning. We wanted to send a message that Arizona is open for business. We welcome businesses here like Tesla and we would love to see them here in Arizona.
The bill would allow manufacturers to sell directly in the state if they solely sell electric vehicles and have at least one service center in the state. Obviously written specifically for Tesla, the bill suggests Arizona is vying for Tesla's Gigafactory, which Tesla says it plans to begin construction on this year.
Rendering of Tesla's planned Gigafactory. Source: Tesla Motors.
Will other states follow Arizona's lead?
Could the Bill from Arizona inspire other states to follow suit -- particularly Texas, which is also trying to land the Gigafactory?
Currently, Tesla operates in a gallery model in Maryland, Texas, Arizona, Virgina, and (most recently) New Jersey, where state laws prevent Tesla from taking orders, discussing price, or giving test drives (except in Maryland, where test drives are allowed). It's unlikely that changes in Tesla's favor in these other states will happen rapidly; auto dealer lobby groups will continue to flex their muscle and fight against bills like the one being considered in Arizona. And Maryland and Virginia don't have a 6,500-job incentive, either.
Investors should also keep in mind that Tesla hasn't actually received the green light in Arizona yet. The legislation now has to be reviewed by a second committee, and then move on to a full Senate vote. You can bet behind-the-scenes lobbying will be intense.
