Musk says Texas dealers 'unjust' in preventing Tesla stores

Texas dealers are unjustly trying to prevent Tesla Motors from competing in their state, company founder and CEO Elon Musk told state lawmakers late Tuesday.

Musk testified in a Texas House committee hearing on behalf of Tesla-backed legislation that would allow the electric vehicle maker to operate company-owned dealerships in the state. Tesla is trying to carve out an exemption to the state's strict dealer franchise laws with a set of bills currently in the Texas Legislature.

"The law was put in place to protect the dealers in Texas, and that's fair," Musk told legislators. "But now what they're trying to do is take that same law and use it for an unjust purpose and that is to prevent a new entrant who is not giving a franchise to operate directly. That is not right."

The Texas Automobile Dealers Association opposes the legislation, saying it is bad for dealers and consumers. Texas dealer Carroll Smith denied that dealers are trying to keep Tesla from competing in the state.

"There's not a block today," said Smith, a National Automobile Dealers Association director who owns Monument Chevrolet in Pasadena, Texas. "They're saying we don't want to play by the same rules. If they want to sell cars tomorrow under the same rules they can do it. There's nothing about their model that doesn't work in our franchised system."

Texas representatives took no action during Tuesday's hearing, leaving the bill pending in committee.

Other states

The Texas legislation marks Tesla's most direct challenge to franchise laws already on the books. But Tesla has been tussling with dealers at the state level elsewhere, such as Massachusetts, for months.

As some state dealer associations try to tighten their franchise laws against factory-owned dealerships, Tesla has been aggressively lobbying policymakers, rallying public support and countering with its own franchise law proposals.

Texas presents the most difficult barriers to selling directly, Tesla officials say.

Tesla currently has two so-called gallery locations in Houston and Austin, but staffers are prohibited from participating in sales activity. They can't share pricing or take orders. Buyers must contact out-of-state Tesla representatives to complete a sale and make their own shipping arrangements.

The company also has service centers in Austin and Houston, but they aren't allowed to evaluate vehicles for warranty repairs. Owners must call a dealership in Fremont, Calif., which determines remotely whether warranty work is needed. The California dealership then can subcontract out the fix to Tesla's Texas service centers.

More locations?

Tesla officials say they want to open more locations in Texas if they can operate in an unfettered manner in the state.

While dealers are pushing for Tesla to use the franchise system, Musk says Tesla would fail if it went that route. Dealers have a conflict of interest and would favor the gasoline-powered vehicles that make up the vast majority of their business over Tesla's vehicles, he argued in his testimony.

"We'd be at the back of the bus," Musk said. "We'd be the least favored of all their cars, and we would fail. So for us, it's a matter of life and death."

Dealers disagree and say the car would sell on its own merit.

"Dealers are the best marketers in the world," said Karen Phillips, general counsel of the Texas dealers association. "That argument did not ring true for me."