Tesla’s push to sell cars directly runs out of juice

Lauren Etter
Bloomberg News

Elon Musk has been shut out of the Lone Star state again.

For the second time in two years, Tesla Motors Inc. is walking away in defeat from Texas after failing to convince lawmakers that it should be allowed to sell its $100,000 electric cars in the state.

Tesla had backed two bills in the legislature that would have allowed it to bypass auto dealers and sell its cars directly to consumers in the second-largest U.S. car market. Neither made it to the House of Representatives or Senate floors for a vote. With the legislature concluding on June 1, its bid is over.

“They are thwarting the will of the people,” said Diarmuid O’Connell, vice president of business development for Tesla, which is based in Palo Alto, California. “That it doesn’t even get a fair hearing — much less a vote — is to me very odd and disturbing.”

For two years, Tesla has been fighting a state-by-state battle to repeal laws enacted decades ago that require manufacturers to distribute vehicles through dealerships. The practice has been defended by dealers, who say it protects family-owned businesses and customers from automobile makers. Tesla says it is an unfair monopoly.

The company has gained traction. This year, Georgia, Maryland and New Jersey enacted laws allowing for direct sales of Tesla vehicles and Tesla is trying to get prohibitions lifted in Arizona, Connecticut, Michigan and West Virginia. The Connecticut legislature is deliberating lifting its ban.

Auto dealers, a powerful lobby in Austin, didn’t want to give Tesla an opening.

“It’s kind of a joke to think that somebody’s going to come in here and ride in on a horse that doesn’t use gasoline and change the world,” said Red McCombs, the 87-year-old billionaire founder of his namesake auto dealership in San Antonio. “They’re going to have to play by the same rules that the competition plays by.”

Auto dealers sell $81.4 billion worth of automobiles in Texas, second only to California, according to figures from the Virginia-based National Automobile Dealers Association. There are more than 2,500 Model S vehicles on Texas roads, out of almost 70,000 worldwide, according to Tesla.

Musk, who chose border-town Brownsville as the launch site for his SpaceX exploration venture last year, has said he would like to consider Texas for future investments. Two years ago, he floated the idea of manufacturing an electric pickup, a modern update of the emblematic Texas transport.

“When we do a pickup, it would be logical that we would do it in Texas,” O’Connell said. “It’s also logical to ask why would we invest major amounts of money in a state where we can’t even do business.”

In January, two days after the start of the legislative session, Musk made a whirlwind tour through Austin. He delivered an address at a transportation conference where he urged lawmakers to tear down dealer walls. He then swung by the Capitol lawn to sign autographs for a crowd of Tesla fans, some wearing “Don’t Mess With Tesla” T-shirts as they stood by their Model S cars.

Tesla hired about 20 lobbyists and spent more than $150,000 on campaign contributions between October and December of last year, according to state records. Tesla lobbyists met with Lieutenant Governor Dan Patrick and also staff from Republican Governor Greg Abbott’s office, said O’Connell.

Tesla’s Lone Star conundrum is heightened by the state’s demographics. Tesla has concentrated its presence in wealthy urban areas, such as Austin or Dallas, where it has “galleries” in malls where customers can learn about the car, though employees are forbidden from discussing prices or offering test drives.

Yet political power in Texas is most potent in rural areas — the very places where auto dealers have deep roots.

In a state larger than France that stretches nearly 900 miles, automobiles and the dealers that sell them are dear to many Texans.

As in other places, auto dealers sponsor Little League teams and Girl Scout troops, spread advertising revenue to newspapers and host victory celebrations for politicians.

In Texas, auto dealers even donate mountains. On the outskirts of Austin stands Mount Bonnell, a cedar-covered promontory with stone steps that afford a city view. Perched at the top is a stone inscribed “Frank M. Covert Sr.” that memorializes the founder of Covert Auto Group, one of the state’s largest dealerships. In 1938, Covert gave the mountain to Travis County.

Tesla knows it has to move mountains of its own in 2017, the next regular legislative session in Texas. It’s courting lawmakers and enlisting supporters.

“We have to do a better job of marshaling the popular support that we know is there,” said O’Connell.