Tesla Pushes N.J. Bill to Follow N.Y. Lead Allowing Direct Sales

Jun 18, 2014 1:41 am ET

June 18 (Bloomberg) -- Tesla Motors Inc. is pushing for the same treatment in New Jersey that it gets in some other states: freedom to sell its cars straight to consumers.

The New Jersey Assembly approved a bill on June 16 that would create a loophole for direct sales of zero-emissions vehicles while preserving decades-old protections for franchised dealerships. The New Jersey vote came the same day that Andrew Cuomo, the Democratic governor of New York, signed a similar measure, allowing Tesla’s five retail centers there while keeping auto-dealer safeguards intact. Tesla earlier this year also won an exemption to an Ohio law banning direct sales.

“This sets a nice template for Tesla,” said Alec Gutierrez, a senior analyst at Kelley Blue Book. Traditional automakers including General Motors Co. and Toyota Motor Corp. have “been resistant to Tesla’s model because once the factory comes in and starts to sell direct, like Tesla is trying to do, that’s going to make it more challenging to maintain their foothold and protect their margins.”

Rules against manufacturer-owned stores could slow Tesla co-founder Elon Musk’s plan for his company to become more than just a niche maker of battery-powered luxury cars. The Tesla Model S is priced from $71,000.

The New Jersey Motor Vehicles Commission, whose members were appointed by Republican Governor Chris Christie, voted unanimously in March to uphold the direct-sales ban. The bill the Assembly adopted would allow such sales by any zero-emission manufacturer licensed by the commission on or before Jan. 1, 2014. A companion bill has been introduced in the state Senate, which like the lower chamber is controlled by Democrats.

‘Overwhelming Message’

Kevin Roberts, a spokesman for Christie, said the governor would review the measure that’s passed and either sign it or veto it within the 45-day window. Roberts declined to comment on the governor’s position.

“As an electric car driver, I’m honored to be part of this effort to find solutions to keep a state-of-the-art product and the future of the auto manufacturing industry right here in New Jersey,” said Assemblyman Tim Eustace, a Democrat who owns a Nissan Motor Co. Leaf electric car. “This legislation will incentivize entrepreneurship, create jobs, promote environmental protection and address the important concerns of consumers.”

Eustace said he sponsored the measure without input from Tesla and had only recently been in contact with the company.

Diarmuid O’Connell, vice president of corporate and business development for Palo Alto, California-based Tesla, said the Assembly vote sent an “overwhelming message” for consumer choice that would “further the cause of sustainable transport and uphold the principles of the free market.”

‘Market Forces’

According to Tesla’s argument, dealer-only rules were created to protect dealerships from unfair competition and mistreatment by manufacturers. Since Tesla has no franchised dealers, the company contends, such rules shouldn’t apply to its retail operations.

Some dealers have sought to block Tesla retail operations, saying requiring people to purchase new cars from dealerships encourages competition and give customers an advocate.

Jonathan Collegio, vice president of public affairs for the National Automobile Dealers Association, said that “it’s up to each state and their legislature to determine what’s best for their residents and the good news is we’re seeing that happening.”

Organizations including the Consumer Federation of America and the Center for Auto Safety have supported the push by Tesla, saying buyers would benefit from having a choice.

“Competition is one of the most powerful market forces that leads to the highest quality goods and services available at the best price,” John Galandak, president of the Commerce and Industry Association of New Jersey, as he joined environmentalists in Trenton to support the Assembly measure.

The measure would allow Tesla to have four retail stores in the Garden State.

“Government is sort of like a referee and rule-maker,” Musk said in an interview on CNBC. “In the case of New Jersey, that doesn’t always happen.”