Tesla Takes On Texas Franchise Law

Tesla logoIn its latest battle with state dealer associations, electric vehicle maker Tesla Motors is trying to change existing franchise laws in Texas.

Tesla is behind bills introduced earlier this month in the Texas Legislature that seek an exemption to current restrictions on factory-owned dealerships for electric vehicle makers that have never used independent franchised dealers. It is Tesla’s most direct challenge to franchise laws already on the books.

The Texas Automobile Dealers Association is vigorously opposing the legislation.

If it becomes law, the proposed change would free Tesla from what one company executive calls “perhaps the highest barriers in the nation to operating” Tesla’s factory-store model.

Tesla’s current operating situation in Texas is “expensive, time consuming and just ridiculous,” said Diarmuid O’Connell, Tesla’s vice president of business development.

The company has two so-called gallery locations, in Houston and Austin, but staffers are prohibited from engaging in selling activity. They can’t give pricing information or take orders. A potential buyer in Texas must contact out-of-state Tesla representatives to complete a sale, O’Connell said. The buyer must also make his or her own shipping arrangements.

Tesla also has service centers in Austin and Houston, but they aren’t allowed to evaluate vehicles for warranty repairs, he said. Tesla customers must call a dealership location in Fremont, Calif., which determines remotely whether warranty work is needed. The California dealership then subcontracts out the repair fix to Tesla’s Texas service centers.

“It’s a really, really twisted kind of thing,” said O’Connell, who will testify at a Texas State Senate committee hearing on the legislation next Wednesday. “It’s very hard for Texas folks to acquire a Tesla — ridiculously hard, I think.”

A representative of the Texas dealers association will also testify at next week’s hearing. The association says Tesla’s proposed changes aren’t good for dealers or consumers in the state.

“The best way for any manufacturer to retail their vehicles is through great dealers,” said Karen Phillips, the association’s general counsel. “They’re the ones who know how to retail, who know how to satisfy the customers, and they’re the ones who should be selling the product.”
In addition to testifying at upcoming hearings, association representatives also are speaking to individual legislators about the bills. Phillips predicts the legislation will fail to gain approval before the Texas body’s session ends in late May.

“To think you should have an exception because you have one electric vehicle is arrogant,” she said, adding that other manufacturers have been working on electric vehicles “for a long time.”

If the legislation passes, Tesla says it will open more stores and service centers. O’Connell noted that Tesla does not yet have retail spots in Dallas or San Antonio, for instance.

“Our investments in Texas would increase markedly if we could broaden our ability to operate a little bit,” he said. “It absolutely has slowed down our expansion in Texas.”

The Texas showdown is only the latest in a series of Tesla battles at the state level.

As dealers in some states try to tighten franchise laws to block factory-owned dealerships, Tesla has been aggressively lobbying policymakers, reaching out to fans to foster public support and even countering with its own franchise law proposals.

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