Legislation Would Let Tesla Sell in Texas

Let the car haggling resume at the Texas Capitol.

A group of state lawmakers on Thursday filed legislation that would allow Tesla Motors to sell its luxury electric cars at as many as 12 stores in Texas, renewing the California-based company’s challenge to a state law protecting auto dealers.

Tesla’s business model is to sell directly to consumers, bypassing the middleman dealers as it does in many states. But a longstanding law bars that practice in Texas.

New legislation — House Bill 1653 and its companion, Senate Bill 639 — would allow manufacturers that have never sold their cars through independent dealerships in Texas to operate the limited number of stores. It’s modeled on deals Tesla has forged in other states, including New York, Ohio and Pennsylvania.

"Free market principles are the foundation of our strong Texas economy," said state Sen. Kelly Hancock, R-North Richland Hills, who filed the Senate bill. "SB 639 helps sustain a competitive marketplace and gives consumers more choices."

State Rep. Eddie Rodriguez, D-Austin filed the House bill, along with with Reps. Charles "Doc" Anderson, R-Waco;  Jodie Laubenberg, R-Parker; Tan Parker, R-Flower Mound; and Ron Simmons, R-Carrollton.

Tesla currently showcases vehicles at "galleries" in Austin, Dallas and Houston, but because the galleries are not franchised dealerships, state law prohibits employees from discussing the price or any logistical aspect of acquiring the car. 

Tesla calls the traditional dealership model unworkable, because it doesn’t mass-produce its cars — at least not yet. The company allows customers to order customized cars that it later delivers, and it can’t depend on independent dealers to champion its new technology, it says. 

“Fundamentally, this company was founded to produce a new technology," Diarmuid O'Connell, vice president of business development, said in an interview. “No one is as unconflicted as we are in our desire to promote electric vehicles.”

Some Texas dealers have approached Tesla about selling its cars, O'Connell said, and the company has “respectfully declined.”

Tesla and others have also questioned whether a traditional dealer could succeed in selling its cars, because dealerships make much of their money on maintenance — something the company's highly touted models require little of. 

O'Connell said the legislation would let Tesla employees educate Texans about its cars in person, allowing the company to grow its footprint here. He envisions adding stores in Corpus Christi, San Antonio, El Paso, Fort Worth and San Antonio, if given permission.

Just 1,800 Teslas were registered in Texas though January, and the company is losing money. Last week, it reported losing $294 million in 2014.

Dealerships argue that the direct-sales ban protects Texans by ensuring that they have spots to buy cars across the state, not just in highly populated cities where manufacturers, if given the chance to sell directly, might otherwise focus.

“Tesla asks for an exception to state law that eliminates their completion, allows them to sell their vehicles at one non-negotiable list price and export their profit out of state, leaving no benefit for Texas,” said Bill Wolters, president of the Texas Automobile Dealers Association. “The Texas franchised dealer system protects consumers and prevents monopolies through competition on motor vehicle sales and service.” 

Dealers have sparred with Tesla since 2013, when legislation failed to draw a chamber vote. Tesla has added firepower this session. It's spending between $625,000 and $1.18 million on 21 lobbyists — including some particularly high-profile names, according to Texas Ethics Commission filings.

Disclosure: Tesla Motors and the Texas Automobile Association are corporate sponsors of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.