Tesla Motors Inc. cut short a test-drive event in Iowa earlier this month after state regulators said the electric-vehicle maker was improperly acting as a dealer.
According to the Des Moines Register, Tesla began offering test drives in its Model S on Sept. 9 at a hotel in West Des Moines. The company canceled the third and final day of its program at the request of the Iowa Department of Transportation.
Paul Steier, director of the bureau of investigation and identity protection at the Iowa Department of Transportation, told Automotive News that Tesla’s test-drive event violated Iowa law requiring a license for any auto retailing activity.
Steier said he and a fellow investigator visited the event and talked to a Tesla representative, who acknowledged using a tablet computer to help some visitors initiate an online Tesla purchase. Regulators then spoke with Tesla’s legal counsel.
“We said we didn't intend to charge them with any state criminal charge as long as they intended to stop what they were doing,” Steier said.
The Tesla representative, who suggested it was supposed to be a display-only event without any discussion of sales or prices, “didn't disagree” that the activities may have violated the law, Steier said. But the lawyer asked whether it would be OK to finish the test-drive event. Steier likened that to a driver getting stopped for speeding while late for work and asking the police officer whether it would be OK to keep speeding until arriving on the job.
Tesla did cancel the planned third day of the event at that point, he said.
Direct sales by manufacturers are not allowed in Iowa, Steier said.
“It’s strictly prohibited,” he said. “They are not allowed to obtain a dealer license in the state.”
A Tesla spokeswoman told the Register that the company did not believe the statute applied because it was not selling cars, only providing test drives. No other test-drive events are planned in Iowa, the paper reported. Tesla does not have a store in Iowa.
Bruce Anderson, president of the Iowa Automobile Dealers Association, said he notified state regulators about the test drives after he saw Tesla promoting the event online.
Test drives are a regulated activity in Iowa, Anderson said, according to a 1970 statute that requires anyone engaged in the business of auto retailing to be licensed. The state wants to make sure a retailer is insured and bonded, he said.
“It’s really a customer protection issue,” Anderson said.
Of Tesla, “I’ll take them at their word that they didn’t know” a license was needed to offer test drives, Anderson said.
Tesla has tussled with dealers in a growing number of states over whether its factory-owned stores violate state laws on direct sales. In some states recently, including Pennsylvania and New York, compromises were reached, allowing Tesla to operate factory stores but with a cap on the number of locations allowed.
Anderson said Iowa’s statute prevents direct sales by a manufacturer with narrow exceptions for uses such as minority dealer development.
