Tesla Motors, Car Dealers Clash Over Franchise Law

Monopolies are bad for consumers, both sides fighting over whether Tesla Motors can enter the Texas new car market agreed Wednesday. But monopoly is in the eye of the beholder.

At a debate hosted by the Texas Conservative Coalition Research Institute, the Texas Automobile Dealers Association argued against carving out an exception in Texas' current franchise law, which says new cars can only be sold through dealerships. Tesla wants to sell its electric vehicles directly to customers, bypassing traditional car dealerships. 

Tesla Motors CEO and billionaire Elon Musk hopes to persuade lawmakers this session to revise the law so Tesla can sell its $69,000 cars directly to Texans.

At Wednesday's debate, Ricardo Reyes, Tesla's vice president of communications, said the current system has created a monopoly for dealerships. But Bill Wolters, the president of the dealers association, argued that Tesla itself is seeking a monopoly, since no other company could sell Tesla Motors’ product. 

“How does a manufacturer of a product that owns every retail outlet benefit a consumer or the state of Texas?” Wolters asked.

Reyes insisted that Tesla just wants to sell directly to its customers. 

“All we’re asking to do is be allowed, unfettered, to compete," Reyes said, calling his company the underdog in the fight.

“It is odd to me that the only thing consumers can’t buy direct is booze and cars in this state,” Reyes said. “Imagine the Girl Scouts having to sell through a distributor network. Imagine Apple having to sell through a distributor network.”

Wolters said the franchise law protects Texans and the state's dealerships. He said dealerships support schools and hospitals in communities across the state, and ensure Texans have access to safe cars.

"If we didn’t have franchise laws, the manufacturers, as they should, would focus on their shareholders and only have dealerships in the most profitable, highly populated areas of our state,” Wolters said. “Do we want to jeopardize two-thirds of the dealerships in our state?”

Dealerships in other states have not suffered from Tesla's presence,Reyes countered. “There is no data to back up these doomsday scenarios,” he said. 

Last session a bill that would change state law to allow Tesla sales in the state was approved in the House committee on Business and Industry, but it did not receive a vote in the Texas House. 

Musk renewed his case for changing state law during an interview with Texas Tribune CEO and Editor-in-Chief Evan Smith earlier this month at an annual conference hosted by the Texas Department of Transportation. He pointed to a compromise Tesla and New York forged, under which Tesla was allowed to open five stores for direct sales. He suggested Texas allow Tesla to open seven stores.

If the Legislature again balks at changing the law this session, Reyes said, Tesla won't give up.

“We’ll be back, we’re not going away,” Reyes said. “Texans want to buy our vehicles, directly from us. We’re responding to good old fashion market demand — people want to be able to buy the best cars they possibly can.”

Disclosure: Tesla Motors is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.