Latest battles in states likely to yield mixed results for Tesla

Tesla's store in Santa Monica, Calif., attracts visitors to the Model S. In many other states, Tesla is locked in battles with dealers over whether it can open stores.

A new round of state legislative battles between Tesla Motors Inc. and dealers looks like a draw so far.

In Arizona, a pro-Tesla bill that would free the electric vehicle maker from that state's ban on manufacturer-owned dealerships is going nowhere. But the face-off might not be over after last week's announcement that Arizona is a finalist for Tesla's $5 billion gigafactory.

In Georgia, a Tesla-backed bill might not meet a legislative deadline to move forward.

But in Washington, after dealers pushed a bill that would have explicitly blocked Tesla's business model, Tesla and dealers have compromised. If lawmakers adopt the amended bill, Tesla will be allowed to freely operate and even expand.

Dealers contend that Tesla's direct-selling model violates franchise and consumer laws in many states. Tesla should have to comply with the same rules that other automakers follow, they say. Dealers also fear Tesla's stores could open a path for other manufacturers to sell directly.

"We have strong feelings about keeping the two separate, manufacturers and dealers," said Bobbi Sparrow, president of the Arizona Automobile Dealers Association.

Tesla executives say their stores are operating legally and that the company isn't trying to overturn the franchised dealer system. They contend Tesla will fail unless allowed to operate its own retail network.

"We just want to be able to give life to this technology -- we're not on a holy mission here," said Diarmuid O'Connell, Tesla vice president of business development. "We'll fight them everywhere we have to, but we're not out to overturn the system."

In addition to Arizona, Georgia and Washington, Tesla-related legislation is active in other states, including Ohio, New York and Massachusetts.

In 2013, Tesla battled dealers in several states including Massachusetts, New York, Texas, North Carolina, Minnesota and Virginia. Results were mixed.

Tesla lost a prominent showdown with Texas dealers over Tesla-backed bills that would have carved out an exemption to that state's ban on factory-owned dealerships. But Tesla held at bay dealer-backed bills in Minnesota, North Carolina and New York. The company also won court decisions in dealer lawsuits in Massachusetts and New York. In Virginia, Tesla reached an agreement allowing the automaker to obtain a single dealership license.

According to the National Automobile Dealers Association, 48 states have restrictions on factory-owned dealerships. Of those, around 20 have statutes that make Tesla's model difficult to operate, Tesla has said.

Tesla CEO Elon Musk has said he will consider action on the national level, either through federal legislation or a federal lawsuit. That remains an option, O'Connell said.

"If we have to continue to have these battles on a one-off basis every year and the numbers start to get big, we're going to have to look at more efficient ways of dealing with this issue," O'Connell told Automotive News.

Tesla is getting a "very good hearing" from members of Congress in both chambers, particularly the House, he said. O'Connell added that he gets a lot of mail from congressional offices sympathetic to Tesla's position.

NADA has vowed to vigorously fight any federal action by Tesla.

Current state challenges

Tesla is expanding its retail network quickly. It now has 49 stores and galleries in 21 states and the District of Columbia.

In Ohio, dealers say existing law should have prevented Tesla from getting licenses for stores in Cincinnati and Columbus. Because it didn't, the Ohio Automobile Dealers Association is pushing legislation it says will amend state law to more explicitly ban factory-owned stores. Previous efforts by the association to amend the statute failed late last year.

O'Connell says Tesla properly applied for and received the licenses.

The Ohio association also is deciding whether to appeal the dismissal of a lawsuit against Tesla and the Ohio agencies that issue dealer licenses. A court magistrate dismissed that lawsuit Feb. 6, ruling that the plaintiffs lacked standing to sue.

In Georgia, where a Tesla store recently opened in suburban Atlanta, the company is backing legislation to let an EV maker sell as many as 1,500 vehicles annually. The Georgia Automobile Dealers Association opposes the change and argues that Tesla doesn't even qualify for an existing direct-sales exemption allowed for manufacturers selling as many as 150 customized vehicles annually.

For the Georgia bill to move on, it would have to be acted upon in the House by today, March 3. As of late last week, there had been no activity since a Feb. 19 hearing; the bill was not included on an initial calendar for consideration today, said Bill Morie, president of the Georgia association. But he noted that even if it misses the deadline, bill backers could still try to tack its language on to moving legislation later in the session.

And the victor is ...
Winners look to be emerging in legislative battles between dealers and Tesla in these states.

  • Washington: Tesla, if amended bill is adopted

  • Arizona: Dealers, unless lawmakers rethink allowing Tesla's business model in order to attract gigafactory

  • Georgia: Dealers, if Tesla-backed bill fails to advance and language isn't attached to another bill


In Washington, Tesla fans rallied at the state Capitol Feb. 17 to protest dealer-backed bills. When it became apparent the wide-ranging legislation would have trouble passing, dealers and Tesla negotiated a carve-out for Tesla, said Bryan Imai, senior general counsel for the Washington State Auto Dealers Association. The amended legislation has passed the state Senate and is moving through the House, he said.

An Arizona lawmaker is calling for a meeting between Tesla and dealers to resolve an impasse that torpedoed pro-Tesla legislation in that state. State Rep. John Kavanagh, who wrote the bill, told Automotive News he dropped the proposal after it became apparent it would be difficult to pass without dealer support. "They need to work it out themselves," Kavanagh said.

That's unlikely, dealer association chief Sparrow said. Tesla and the association have had no discussions, and she doesn't anticipate that changing anytime soon.

What Sparrow does expect, however, are renewed efforts by Tesla to change Arizona's prohibitions in light of last week's announcement that her state is a finalist for the massive gigafactory project. Tesla plans a 10 million-square-foot factory to produce lithium ion batteries for its vehicles. Another finalist for the project is Texas, where Tesla's efforts to gain an exemption to a direct-sales ban failed last year.

As of late last week, Tesla had not responded to a request for comment on whether the factory decision would be tied to gaining exemptions from the direct-sales bans of finalist states.

"It's interesting timing," Sparrow said. And while it's late in Arizona's legislative session for Tesla to put a new bill together, "I don't think they're done. I think this is going to be a long couple of years."

You can reach Amy Wilson at awilson@crain.com -- Follow Amy on Twitter: @theamywilson

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