To date, 80 North Carolina residents have squeezed their savings for the bragging right of owning the Tesla Model S electric car, some paying more than $100,000 for their g-force ride, but they may be among the last.
A legislative proposal, backed by the N.C. Automobile Dealers Association, would make it illegal for Tesla, or any other car maker, to bypass dealerships and sell directly in the state. The proposal cuts at the heart of Tesla’s business model: selling luxury cars over the phone or Internet and then delivering them to the front door of high-net-worth customers.
Still, the proposal was unanimously approved by the state Senate’s Commerce Committee on Thursday, despite concerns about the state dictating who should be allowed to sell an automobile. North Carolina is the latest forum for the clash as auto dealers around the country have mobilized, mostly without success, in legislatures and in the courts to block Tesla’s direct car sales.
“They’re trying to insulate the dealer franchise model from any competition,” said Diarmuid O’Connell, Tesla’s vice president for corporate and business development, who traveled to Raleigh to make a presentation to the committee. “It’s a protectionist move to lock down the market so we have to go through the middleman – the dealer – to sell our cars.”
The 10-year-old California company is seeking to upend stodgy electric car design by creating the antithesis of the practical plug-in and an alternative to the complex hybrid. Tesla’s 416-horsepower Model S can cruise 265 miles on a single charge. Just this week Consumer Reports awarded the car a near-perfect score of 99 out of a possible 100 points, gushing about the S’s “world-class performance.” The cars start around $69,900.
In the process Tesla has run up against a decades-old gentlemen’s agreement between car makers who don’t want the hassle of managing car inventories all over tarnation, and local dealers, whose prime directive is to move metal in high volumes.
The whole misunderstanding would go away, the dealers say, if Tesla sold its cars through licensed dealerships. O’Connell countered, in essence, that displaying a Tesla in a showroom of subcompacts and SUVs would be akin to selling Dom Perignon in the food court at the local mall.
Nor would it necessarily make economic sense for Tesla to open its own dealership; the company on Wednesday just announced its first quarterly profit.
But it’s not Tesla per se, that worries the dealers. It’s the precedent. The prospect threatens the livelihood of North Carolina’s 7,000 licensed dealers, who invest millions in building big lots and showrooms to efficiently move product, say supporters of the bill.
“We care about the franchise system,” said Robert Glaser, president of the N.C. Automobile Dealers Association. “The whole point of the retail system is to protect the consumer.”
The local dealer is the customer’s point of contact on malfunctions, defects and recalls, Glaser said. Automakers are designers, manufacturers and wholesalers that remain largely invisible to the car buyers, he said.
“You tell me they’re gonna support the little leagues and the YMCA?” Glaser asked, directing his glance at the Tesla contingent milling about a few feet away in the legislative building.
The sponsor of the legislation, Sen. Tom Apodaca, a Republican from Henderson, agreed to tone down the bill that originally would have deemed anyone who provides a computer or equipment used to order a Tesla to be operating as a dealer. Apodaca said his bill is about preventing unfair competition between manufacturers and dealers.
Some senators hesitant
Some senators who sided with the dealers said they were troubled by the bill. Sen. Josh Stein of Wake County said he voted for it because Apodaca gave assurances the proposal would be fine-tuned to addressed concerns. Stein considers Tesla a startup that should be exempted from the state’s dealership provisions until it becomes big enough to be considered a competitor.
Apodaca’s bill was introduced two months ago and just now received its first vote. It still needs to pass the full Senate and then the full House. If it were to become law, O’Connell said, Tesla would have to stop selling S cars to North Carolina residents.
Tesla is steered by CEO Elon Musk, the creator of PayPal and CEO of SpaceX, a rocket transportation firm. Musk’s background in online sales and supersonic velocity converge in the Model S: a noiseless predator fashioned of boron elements and digital circuitry that a Wall Street Journal reviewer described as “a glowing, glassine tranche of well-heeled wickedness.”
Texas is another state that prohibits direct car sales to the public, but is not as restrictive as North Carolina’s proposal, O’Connell said. In that state, Tesla has set up galleries to showcase the cars but Tesla reps are forbidden from discussing price and offering test drives, he said. However, Texas customers can special-order the cars online.
Boone resident Ronald Dhing got his Tesla three months ago, two years after placing his $5,000 down payment through PayPal. His $109,000 machine is stuffed with every option available except the rear jump seat.
Dhing, owner of the Makotos Japanese Steak House and Sushi Bar, drove about 200 miles to Raleigh on a single charge for the opportunity to make a few minutes of public comments before the Senate committee, an opportunity he was not afforded.
“I hate it that the federal and state governments work so much to promote alternative fuels and now at the doorstep of it they want to block this,” he said. “It’s insane.”