A bill has made its way through the Senate floor in North Carolina that could conceivably shut down business for Tesla Motors (NASDAQ:TSLA) in the state. The electric car maker relies on direct-to-consumer sales, which gives the company an advantage over manufacturers who must sell through a dealership.
The bill would essentially make it illegal for manufacturers to sell cars to consumers without using a licensed dealer. If signed into law, the new legislation would make Tesla unable to sell its cars in North Carolina, as it relies mostly on Internet orders from customers around the country. The company has sold eighty of its Model S sedans in the state, and has orders for sixty more.
The bill is backed by the North Carolina Automobile Dealers’ Association, which maintains that Tesla has an unfair advantage in its unique marketing model.
Robert Glaser, the association’s president, pointed out that car manufacturers have been barred from selling directly to consumers in North Carolina since the mid-1970′s. “This bill doesn’t change the law at all,” he said. “Somehow, they’ve been selling cars in North Carolina, you know, and I don’t know how it compares to that law.”
Instead, the bill would only redefine what a dealer is — and Tesla’s model is not included in that redefinition. “We believe that Tesla, like all the other auto dealers in the state, should get a license, appoint a dealer, fall under the protection of the Department of Motor Vehicles, and sell cars,” Glaser said. “We just want them to play by the same set of rules that the other 7,000 dealers in the state do.”
However, by establishing a middle-man, Tesla would take a dent to its margins on the car, which are already on the lower end — and there isn’t much room to inflate the price of the car either, which runs over $100,000 when fully equipped, and makes the minimal cost of meeting dealer license requirements a fairly significant deal.
Diarmuid O’Connell, Tesla’s vice president of business development, said that the bill was a “fundamentally protectionist effort to lock down the market and force us to sell through the middle man.”
“We are happy to play by the rules in North Carolina right now, but what [lawmakers] are doing is changing the goal posts,” he said. “And in doing so, they are eliminating a fundamental right of North Carolina residents to transact a vehicle online in the privacy of their home.”
Tesla has also argued that the Model S cannot be sold in dealers alongside gasoline cars, as the salesforce cannot sell one without being to the detriment of the other.
“We’re not in the business of tearing down the dealer model,” said O’Connell. “We simply believe that to successfully introduce this technology to the market, it needs to be done in a focused fashion, by us.”
It seems that there is no black and white solution, and that a remedy that sees to the needs of both parties lies in the middle. Perhaps instead, the legislation must be revisited in full rather than as an addition to a dated piece that forces companies to comply.