Car Sales
7:48 pm
Tue March 18, 2014

Will Texas Law Keep Tesla From Building "Gigafactory"?

Tesla Motors determines where it will manufacture the massive batteries that power their cars, and Texas is in the final four. But many question whether or not Texas’ regulations keeping the company from creating dealerships that can sell directly to consumers will also keep the company from bringing the 6500 high-paying jobs that this factory—the "Gigafactory," as they call it-- would promise. 

Tesla’s Vice President of Business Development, Diarmuid O’Connell, said in a recent Bloomberg interview:  “The issue of where we do our business is in some ways inextricably linked to where we sell our cars. If Texas wants to reconsider its position on Tesla selling directly in Texas, it certainly wouldn’t hurt.”

Tesla makes the best car in the country according to Motor Trend and Consumer Reports. You can’t buy it here in Texas though. Texas, Ohio and New Jersey all prohibit manufactures from owning lots that sell direct to consumers.  Last year Tesla founder and CEO Elon Musk tried to change that. The billionaire stopped into Austin to try and change some minds, but came up against one of the strongest lobbies in Texas, The Texas Automobile Dealers Association. 

“It’s legendary . They really have an incredible reputation as a trade group in Austin that calls the shots.”  

That’s according to Andrew Wheat, Research Director for Texans for Public Justice, a watchdog group that tracks money in politics. Wheat said with Tesla having just 8 lobbyists and no super PAC to fuel campaigns, Musk was outgunned.

“The dealerships had 26 lobbyists being paid $780,000 and more importantly the dealerships pumped 2.5 million dollars into campaigns,” said Wheat.

The laws came about to protect dealerships that invested millions in capital at the behest of legacy car manufacturers who wanted to focus on manufacturing from coming back later to sell direct. While Tesla can’t be lumped into these legacy manufacturers, some make the argument that the additional services a dealership offers are worth maintaining. 

“Car Dealers have come a huge, long way.  You can find really good car dealers that perform a whole lot of services that you just can’t get in a mass market,” said John O’Dell, senior editor for green cars at the auto website edmunds.com.

But that isn’t the market that Tesla is competing in currently. Tesla sells hundred thousand dollar cars that don’t need maintenance, and won’t for some time. Their educating the public to their product, which they contend is unlike other cars, would not succeed in a franchise Tesla has said time and again. But when the company eyes lower consumer markets as it states it will with its Model E…the ballgame changes.

“Tesla itself has said that they are going to most likely be looking at a franchise dealership system some years down the road as they look to expand beyond the Model S and the Model X. What we are saying is that is a good road to look down,” said O’Dell

Whether or not Texas’ regulations will ruin our chances of Tesla building its "Gigafactory" in Texas is unclear. The chances of it becoming a political issue in Texas is unlikely with the legislative session more than a year away. According Jim Malewitz, who wrote a piece Tuesday on this topic for the Texas Tribune, the current gubernatorial candidates seem to be shying away from this one too. 

“Both governors candidates haven’t been that willing to talk straight up policy yet,” said Malewitz “I did get a hold of Senator Davis’ office and she, in a roundabout way, said no she would not be willing to push to overturn the franchise laws. I didn’t hear back from Attorney General Abbot’s office,” he continued.

So while it may be unclear what Tesla will do. It is clear right now what Texas won’t.

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