Tesla Fights for a Place to Park

Tesla Motors, the maker of high-end all- electric cars, has made no secret of its ambitions to transform the auto industry, through methods ranging from the radical design of its cars to its free network of charging stations to repairing its sedans remotely by computer. But now, Tesla's lofty goals have run into a more ordinary roadblock: the ubiquitous local auto dealer.

New Jersey last week became the latest state, joining Texas and Arizona, to effectively shut down Tesla, when regulators said that it had until April 1 to comply with the state's restrictive dealership laws. In Ohio, lawmakers are considering passing similar legislation. And Tesla now expects New York dealers to once more seek regulatory changes before the State Legislature. The company has faced court challenges in New York before and in Massachusetts, as well as attempts to restrict its direct-sales approach in Virginia, North Carolina and Minnesota.

To Tesla, the challenges are nothing more than the actions of an entrenched and politically connected industry unwilling to consider new ways of doing business. 'Auto dealers have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none,' Elon Musk, Tesla's founder, wrote on the company's blog on Friday.

But to the dealers, Tesla's efforts would harm consumers, limiting their ability to shop around for the best price, trade in vehicles or obtain financing for a new car.

Tesla, whose one model is a $70,000 four-door sedan, the Model S, wants everything about buying and owning its cars to be as easy and smooth as possible. At its stores, there are no hard-charging managers pushing a sale on unwitting buyers, no haggling over price, no hurt feelings.

Designed by the same executive who developed the first Apple stores, the stores are more art gallery than auto shop. Pleasant ambient sounds replace the cackle of impact wrenches. Buyers strolling about the brightly colored showrooms can learn about the company's lithium-ion batteries and advanced electric-drive technology. They can pick their car's colors, trims and options on touch screens.

But most states have some limits on direct sales by auto manufacturers, according to the National Automobile Dealers Association. These rules are generally meant to ensure competition, so that buyers can shop around for discounts from independent dealers, and to protect car dealers and franchises from being undercut by the automakers.

'Franchise laws covering automobile dealers were pretty much written by the auto dealers, so they afford very strong protections to automobile dealers,' said Michelle Krebs, an independent analyst in Detroit.

Mr. Musk, whose other ventures include the SpaceX private rocket company and SolarCity, told his shareholders last year that these rules were a 'perversion of democracy' brought about by a powerful lobby.

A company executive referred to the New Jersey decision as a 'death sentence' for its stores at the Garden State Mall in Paramus and the Short Hills Mall.

James Appleton, the president of the New Jersey Coalition of Automotive Retailers, said that New Jersey had 'slightly goofed' and that Tesla should never have been issued a retail license in the first place.

'Our beef with Tesla is not about the product,' he said.

'State legislatures, in their infinite wisdom, look with great suspicion and disdain at vertical monopolies,' Mr. Appleton said. 'It's like putting the fox in charge of the chicken coop.'

Tesla, for its part, accused Gov. Chris Christie of going back on his word and not presenting the matter before the State Legislature. A spokesman for the governor denied Tesla's interpretation, and said Tesla 'had been aware of this position since the beginning.'

'The dealers' argument doesn't survive well in the light of day, so the trend now is to do these things in a more subterranean way,' said Diarmuid O'Connell, Tesla's vice president for business development. 'The issue of New Jersey is exemplary.'

If the ban stands, Tesla said it would turn its stores into galleries, as it has in Texas. There, Tesla faces strict limits on what employees in Houston and Austin can talk about with customers. Tesla said they were not allowed to offer test drives or tell them where they can buy a car, or even refer them to out-of-state stores. The gallery's interactive screens had to be expunged of pricing information. To get their car serviced, owners in Texas must call Tesla's California offices since the local service center cannot advertise that it repairs cars.

Under the proposed legislation in Ohio, Tesla would be able to retain two existing stores in Columbus and Cincinnati, but could not apply for new licenses to open more stores. Ohio lawmakers received more than $100,000 from the association representing Ohio auto dealers, according to campaign finance records reviewed by The Plain Dealer newspaper in Cleveland.

New York auto dealers first challenged Tesla in court in 2010 and lost. After that, they tried several times to block Tesla by pushing for changes in state regulations, so far unsuccessfully, according to Mr. O'Connell. On Friday, representatives of New York auto dealers indicated they might try again by summer.

The carmaker has developed a cult following, but it remains a niche player. It delivered 22,477 cars last year, a minuscule share of the 15.6 million vehicles sold in the United States last year.

The fight is not just about Tesla. Industry representatives do not want to open any door for manufacturers to get back into the business of direct sales, putting at risk the dealer's profit margin, which is anywhere between 10 percent and 20 percent of the suggested retail price. In the past, a handful have tried and failed, including Ford, Daewoo and General Motors.

'The dealer regulations are similar to those put in place to save the family farm and protect individual farmers,' said Jack R. Nerad, the executive market analyst at Kelley Blue Book. 'But the landscape is vastly different now. Big dealerships don't need the type of protection the single-brand store needed back in the day.'

Tesla faces other challenges. The company's technology is being questioned, including an investigation by federal safety regulators, after a small number of fires involving the Model S.

Still, the Model S has achieved the best safety rating in the industry in government testing, and the brand remains extremely popular. Tesla plans to increase deliveries of Model S cars by 55 percent in 2014 and to introduce another car: the Model X, an electric minivan-S.U.V. that can seat seven adults, next year. The company is also plotting its global expansion and plans to deliver its first Model S to China this spring.

Given Tesla's loyal following, the restrictions on its sales are not going down well with fans. Owners in Washington State took to the roads last month to protest legislation that would have prevented the company from opening additional stores or service centers.

Tesla won that fight. New rules bar automakers from owning their stores, but lawmakers carved out an exemption for Tesla.

'Everything we say we want in the industry is symbolized by the market disruption that Tesla represents,' said Rep. Reuven Carlyle, a Democrat who helped broker the deal in the state Legislature. But, he cautioned, 'we threw future Teslas, future entrepreneurs, future innovative market entrants under the bus.'

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