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Tesla wins right to operate in N.J.

David Shepardson
Detroit News Washington Bureau

Washington — New Jersey Gov. Chris Christie signed legislation Wednesday that will again allow electric vehicle firm Tesla Motors Inc. to sell vehicles in the Garden State directly to owners.

The bill comes after the state in March 2014 barred Tesla from selling vehicles under heavy pressure from the state’s auto dealers. The Palo Alto, California, startup has been fighting in many states to sell vehicles directly to owners — bypassing the traditional dealer franchise system. Most states make it illegal for automakers to sell vehicles directly to consumers.

“I said last year that if the Legislature changed the law, I would sign new legislation put on my desk and that is exactly what I’m doing today,” Christie said in a statement. “We’re pleased that manufacturers like Tesla will now have the opportunity to establish direct sales operations for consumers in a manner lawfully in New Jersey.”

The bill allows Tesla to operate up to four sales locations and must have a service center in New Jersey. Tesla has already set up a service center in Paramus.

Last year, Tesla chairman and CEO Elon Musk blasted Christie. “The rationale given for the regulation change that requires auto companies to sell through dealers is that it ensures ‘consumer protection.’ If you believe this, Gov. Christie has a bridge closure he wants to sell you! Unless they are referring to the mafia version of ‘protection,’ this is obviously untrue. As anyone who has been through the conventional auto dealer purchase process knows, consumer protection is pretty much the furthest thing from the typical car dealer’s mind,” Musk said referring to a scandal involving traffic delays in Fort Lee, N.J..

Musk said dealer franchise laws made sense with existing automakers. But “when Tesla came along as a new company with no existing franchisees, the auto dealers, who possess vastly more resources and influence than Tesla, nonetheless sought to force us to sell through them. The reason that we did not choose to do this is that the 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.”

Musk has blamed dealers in part for the failure of startup automakers.

“The last successful American car company was Chrysler, which was founded almost a century ago, and even they went bankrupt a few years ago, along with General Motors. Since the founding of Chrysler, there have been dozens of failures, Tucker and DeLorean being simply the most well-known. In recent years, electric car startups, such as Fisker, Coda, and many others, attempted to use auto dealers and all failed,” he wrote. “An even bigger conflict of interest with auto dealers is that they make most of their profit from service, but electric cars require much less service than gasoline cars. There are no oil, spark plug or fuel filter changes, no tune-ups and no smog checks needed for an electric car.

Tesla has been fighting in states such as Utah, Michigan and Texas seeking the ability to sell vehicles directly to consumers.

In October, Gov. Rick Snyder signed a bill banning automakers from selling vehicles directly to customers in Michigan. The new law closes a loophole that Tesla has used in other states to maintain company-owned retail stores, bypassing the dealership route.

The previous state law prohibited an automaker from selling new vehicles directly to retail customers except through its franchised dealers. The new law removes the word “its,” which Tesla officials said was a last-minute, monopolistic strike at their upstart company that has no traditional dealerships.

Tesla believes the bill may restrict its ability to even open a gallery — often found in shopping malls — where cars are displayed but not sold.

Diarmuid O’Connell, Tesla’s vice president for business development., said in a Detroit News interview in October that Tesla had been in talks for a year with the Michigan Secretary of State’s Office to open a store in the state. He said Tesla hasn’t decided if it will begin a legal challenge against the new law.

Tesla General Counsel Todd Maron said the automaker wants to work with Snyder and the Legislature in 2015 to “get a law that makes more sense.” The governor urged the Legislature to engage in a “healthy, open” discussion in the 2015-16 session about whether the business model in Michigan is working.

Tesla sells in about 20 states — but is legally barred in about four major states, including Texas and Arizona.