Automaker Tesla looks to bypass car dealers
Across from the Victoria’s Secret at the upscale Natick Mall is the kind of stylish storefront where you would expect to buy designer jeans, boutique jewelry, and chic accessories.
But the expensive bauble on sale in this storefront is a car —
That is, if Tesla wins its pitched battle with Massachusetts auto dealers over the right to sell its vehicles directly to the public from a comfy store, or over the Internet, rather than through a traditional car dealership, as usually required.
On Tuesday, the fight landed the two sides before the state Legislature, where Tesla and local auto dealers, through their state association, asked lawmakers to legislate the terms of car buying in Massachusetts in their respective favors.
Auto dealers contend that Tesla is doing an end-run around a decades-old state franchise law that says cars can be sold only by dealerships that are independent of car manufacturers. However, the dealers several times failed in local court to block the Natick Tesla store from opening, and the Tesla case is scheduled to be heard before the Massachusetts Supreme Judicial Court in February.
The hearing Tuesday on Beacon Hill featured polar policies: one bill that would expressly outlaw Tesla’s direct-to-consumer sales model, and another that would legalize it.
“It really comes down to consumer choice,” said Natick state Representative David Linsky, who is sponsoring the pro-Tesla bill. “What delivers the best deal, the best service for the consumer? Let’s let the market determine it.”
The outcome of the case could help shape how consumers go about buying cars, holding out the prospect that it someday may be as easy as, say, going to the Apple store to order a new laptop.
The dealer franchise law was adopted to protect local car sellers from undue pressure from the major automakers by, for example, preventing manufacturers from opening their own nearby car lots and underselling their own dealers.
Robert F. O’Koniewski, executive vice president of the Massachusetts State Auto Dealers Association, said the law protects consumers because it encourages car sellers to compete with each other; allowing a carmaker to act as its own dealer would eliminate the dynamic of competition within the brand.
And all Tesla has to do, O’Koniewski said, is join the crowd and sell its cars through the independent dealer system.
“This has nothing to do with trying to prevent them from doing business in the Commonwealth,” O’Koniewski said. “It has everything to do with following the law, like the other 412 dealers have to do and the other 25 manufacturers have to do.”
But Tesla counters that independently owned dealers are in effect exerting a monopoly on car sales in Massachusetts. James C. Chen, the company’s vice president of regulatory affairs, told lawmakers Tuesday that Tesla might shift to a franchised dealership model in the future, but for now the 10-year-old company only makes 21,000 cars per year — not nearly enough to support a network of dealerships selling Teslas exclusively.
That means a dealer would have to sell Teslas alongside gas-powered vehicles, which sets up a conflict of interest, Chen argued.
“There is a financial disincentive for them to sell electric vehicles, versus their internal combustion engine vehicles,” he said. “To tout the benefits of an electric car would naturally denigrate the incumbent technology.”
This is the second major debate in the past year in Massachusetts about competition in the auto industry. The “right to repair” battle pitted auto manufacturers against independent mechanics over access to diagnostic and repair information, which now must be made available through a universal system by 2018. Proponents argued it was unfair for carmakers to monopolize that information and force consumers to bring their vehicles to auto dealers, where manufacturers would receive a slice of the repair bill.
Tesla, meanwhile, is fighting similar battles in many other states that have franchise laws like the one in Massachusetts. The company is also dealing with a troublesome setback, as federal safety inspectors on Tuesday launched an investigation into whether Tesla’s Model S electric car is vulnerable to fires because roadway debris can pierce the car’s underbody and battery — igniting fires in two Model S cars recently.
The lower-powered Tesla begins at around $70,000 and can top $120,000 with a larger battery and the kind of luxury amenities found in cars made by Jaguar and BMW.
Despite its price tag, the Tesla Model S has wowed car aficionados and industry reviewers with its super-fast performance, super-sleek design, and high-tech interior. No less a gimlet eye than Consumer Reports earlier this year gave the Model S a near-perfect rating — 99 out of 100 — and described the car’s performance as “a silent yet potent surge of power that will make many sports cars weep with envy.”
The higher-powered version can travel about 265 miles on a single charge and recovers about 30 miles for every hour of charging with a traditional plug.
Supercharging stations, which Tesla is building at highway rest stops across the country — with two in Connecticut — can provide a simple repower in less than an hour.
The company plans within the next few years to unveil a more affordable car that it expects will start at about $35,000, though a firm release date has not been set. More immediately, Tesla will again try to push the futuristic envelope with its Model X SUV, scheduled for next year at a similar price as the Model S. The Model X will feature “falcon wing” doors that open vertically.
The Tesla’s performance is one of the reasons Hingham resident Laura Burns bought the Model S. But she said the best part was the direct-buying experience.
“There may be people who like to haggle with dealers, but I don’t know any,” she said. “Most people hate it. The experience was night and day.”