Tesla plays hardball

Tesla Motors is going on offense in battles with dealer associations over its retail model.

As dealers in some states try to tighten franchise laws to block factory-owned dealerships, Tesla is aggressively lobbying policymakers, reaching out to fans to foster public support and even countering with its own franchise law proposals.

The electric-car maker chalked up a win in Minnesota last week when the state dealer association there dropped its pursuit -- at least for now -- of a franchise law bill that would have prevented Tesla from opening stores in the state.

Another legislative showdown looms in Massachusetts, where the state dealers association and Tesla are backing separate bills that would address the franchise act's stance on factory ownership. And Tesla, which also faces lawsuits by dealers in Massachusetts and New York, continues to track legislative activity in other states.

Tesla executives say the company is merely defending itself.

"Our posture is that of the aggrieved party," Diarmuid O'Connell, Tesla's vice president of business development, wrote in an e-mail to Automotive News. "We would not be engaged in any of this legislative activity or litigation if the dealer associations were not trying to shut us out of their markets."

Dealer association heads say they are trying to enforce or clarify existing laws restricting factory ownership of dealerships. They say they won't back down and will do more lobbying to convince lawmakers and the public of the benefits of the franchise system, including its advantages for consumers over manufacturer-owned stores.

"We're here to defend the franchise system, and Tesla is trying to promote a nonfranchise system," said Scott Lambert, executive vice president of the Minnesota Automobile Dealers Association. "The fight has really just started. Tesla is bringing this issue to the forefront, and I think they're going to have their hands full in states all over the country before this is done."

Tesla has 22 U.S. stores and showrooms in 11 states and the District of Columbia.

O'Connell, who leads Tesla's efforts at the state level, acknowledges that some states have statutes that make it difficult to operate a Tesla retail store.

He pointed out Colorado, where Tesla opened a store in 2009. The Colorado Automobile Dealers Association went to the state legislature to tighten the law and "closed the door on us" for additional stores, he said. The existing Tesla store in Colorado is legal under a grandfathering provision.

The Minnesota bill would have rewritten the state's franchise law to make it clear that a vehicle manufacturer cannot operate a dealership. Under the state's current law, a manufacturer is prohibited from competing with a franchised dealer selling the same brand.

Tesla voiced loud objections to the proposed legislation, sending executives to testify at committee hearings and lobbying legislators. A Twitter account and online petition seeking support for Tesla's position were established quickly. Tesla proposed an amendment that would allow it to open stores in the state.

Lambert said the Minnesota association was "caught by surprise" by Tesla's aggressive public relations moves. The association wasn't aware of Tesla's interest in the state when it put together the legislation, he said.

When bills were introduced in February, Tesla was negotiating on locations for a store at the Mall of America in Bloomington, Minn., and for a service center in nearby Edina.

Tesla is now proceeding with plans to open those locations, though dealers may still challenge their legality. It's unclear whether Tesla can get a license under Minnesota's current law, Lambert said, and the association's legal experts are studying that. Tesla's O'Connell says current law unambiguously allows Tesla to operate.

Dealers are likely to reintroduce the legislation in 2014.

"We just have more work to do with the legislators and make sure they understand the benefit of the franchise system," Lambert said.

Lambert and other dealer association leaders argue that consumers get better service from franchised dealerships, particularly in the areas of warranty and lemon-law claims, than they would from factory-owned stores.

Tesla has shown a more forceful side in recent weeks. In addition to the state battles, Tesla CEO Elon Musk took on The New York Times after a negative review of the cold-weather performance of the Tesla Model S. Musk blogged and tweeted about the review, calling it a "fake."

And in January, Musk pledged his assistance to selectmen of the suburban Boston town of Natick, Mass. Those board members were sued by the Massachusetts State Automobile Dealers Association after approving a dealer license for Tesla.

Tesla is pushing its own franchise bill in Massachusetts to ensure its ability to operate stores in that state. It competes with a dealer association bill that would clarify the current limits on manufacturer ownership of dealerships. It could be months before public hearings are held on those bills. Massachusetts' current legislative session doesn't end until July 2014.

Robert O'Koniewski, executive vice president of the dealer association, says the law is already clear in prohibiting factory stores. But the association is seeking the change, he says, as a means of "piling on" for people "who are obtuse and can't understand what the statute says."

The dealer association sued Tesla last October, alleging that the automaker violated state franchise and consumer protection laws by opening in Natick. A judge threw out the suit in December, saying the plaintiffs lacked standing to sue. The association is appealing that decision.

O'Koniewski said Tesla was trying to destroy the franchise system. "They can twit and tweet and Facebook all they want," O'Koniewski said. "The point is we have a franchise law and a licensure law that has worked very well over time to protect the consumer."

Tesla executives say changing the franchise system is the last thing on their agenda. They say Tesla works hard to comply with state and local laws as it tries to replicate the Apple shopping experience in its factory stores. It's an experience franchised dealers can't provide, Tesla executives argue.

"We're introducing a new technology, and we want to advocate for it, educate and serve and protect our customers ourselves," O'Connell said. "As Elon has said, the reason we're doing it is our whole mission in life is EVs."

Minnesota was a significant win for Tesla on what is traditionally dealers' home turf in the state legislatures. Tesla highlighted its environmental credentials in its argument to lawmakers.

Though collecting just 78 signatures, the pro-Tesla petition touted the automaker as a "clean, green U.S. auto manufacturer" that would enhance the state's image as an environmental leader.

Dealer advocates say the disagreement is not about the car. They're not against electric vehicles, they say; the fight is about the way those vehicles are sold.

Jim Moors, director of franchising and state law for the National Automobile Dealers Association, said he is only aware of proposed legislation addressing factory stores in Minnesota and Massachusetts. NADA says 48 states already restrict or prohibit factory ownership of stores.

It's not just a Tesla issue, Moors said. "The idea of manufacturers and distributors owning dealerships has been a longstanding concern," he said.

The face-off with Tesla, though, makes publicizing the benefits of the franchise system a top priority for NADA and state dealer associations.

Said Moors: "It's something we'll probably spend a lot more time doing."