Ohio Senate Panel Approves Compromise on Tesla Direct Sales

Mar 26, 2014 4:11 pm ET

(Updates with closing share price in sixth paragraph.)

March 26 (Bloomberg) -- An Ohio Senate committee approved a bill formally barring automakers from selling directly to consumers except for a maximum of three outlets for electric-car builder Tesla Motors Inc.

The measure was a compromise between the company and the Ohio Automobile Dealers Association, which had sought to block Tesla from selling without a middleman, according to state Senator Scott Oelslager, the committee chairman.

Tesla, based in Palo Alto, California, operates Ohio stores in Columbus and Cincinnati and will be permitted to add a third as long as the company isn’t sold or acquired and doesn’t produce anything other than all-electric vehicles, under the legislation worked out yesterday.

The bill, which prohibits the state from issuing a dealer’s license to an automaker except for Tesla, moves to the full Ohio Senate for consideration. Dealers have sought to block direct- vehicle retailing in states including New Jersey and New York, arguing that doing so violates franchise laws.

New Jersey’s eight-member Motor Vehicle Commission, composed of members of Governor Chris Christie’s cabinet and others appointed by him, voted unanimously March 11 to block Tesla from direct sales.

Tesla fell 3.4 percent to $212.96 at the close in New York. The stock, up more than fivefold in the past 12 months, has lost about 9 percent in the period from the New Jersey vote to yesterday’s close.

Educating Customers

The Ohio compromise will allow Tesla to continue educating customers about its vehicles in its retail stores, which the company thinks is necessary to promote the new technology, said Diarmuid O’Connell, vice president of business development.

“One could always hope for more, but I think that this gives us a sufficient base from which to grow and to advance electric vehicles in Ohio,” O’Connell said in an interview.

Traditional franchise dealers opposed Tesla’s direct sales because it would open the practice to other manufacturers, jeopardizing investments in their dealerships, said Tim Doran, president of the Ohio Automobile Dealers Association.

“Nobody’s happy with the solution, but it is a reasonable solution that allows predictability into the future for the dealer model,” Doran said in an interview.