Tesla Messes With Texas: Can Elon Musk Succeed In The Lone Star State?

April 8, 2013

If you haven't been to Texas in a while, it might be time to pay a visit.

Oil is still big business there, but wind farms are picking up speed. And although there's plenty of farmland, today's Texas  -- especially the Austin area -- is a high-tech hub, home to start-ups, gaming firms, and more. 

Which is why Texas seems like a good match for electric car manufacturer Tesla, and why the company's CEO, Elon Musk, is so eager to gain traction with well-heeled, eco-friendly Texans. 

There's just one problem: like most states in America, Texas' franchise laws prevent automakers from operating their own dealerships -- a holdover from the auto industry's early days. That's why Musk is currently in Austin, lobbying state legislators for change.

Unfortunately, Musk isn't winning any friends among dealers themselves. Granted, the Texas Automobile Dealers Association, wasn't exactly on his side to start with, but when an internal email urging Tesla employees to rally their friends in Texas got leaked to Forbes, tensions escalated. Here's an excerpt:

It is crazy that Texas, which prides itself on individual freedom, has the most restrictive laws in the country protecting the big auto dealer groups from competition. If the people of Texas knew how bad this was, they would be up in arms, because they are getting ripped off by the auto dealers as a result (not saying they are all bad – there a few good ones, but many are extremely heinous). We just need to get the word out before these guys are able to pull a fast one on us

In a follow-up interview, Musk appears pretty level-headed about Tesla's lobbying efforts, and he knows advocacy is almost always an uphill battle. But could Tesla follow another path to victory in the Lone Star State?


The good news for Tesla is that it's been gaining momentum elsewhere in the U.S. A bill to ban Tesla stores in Minnesota was recently defeated in the state senate. And in Massachusetts, a judge threw out a lawsuit that dealers brought against Tesla for violating franchise laws similar to those found in Texas. 

The bad news is that in both of those instances, Tesla was fending off charges brought by powerful dealer networks -- and it did so in courtrooms, not in state legislatures. Running defense in the judicial system is a far cry from mounting an offensive on capitol hill, lobbying legislators to make room for Tesla in the legal code.

For Musk to get anywhere in Texas, his best bet probably lies in reminding elected officials how difficult it is for the state's residents to purchase and maintain Tesla vehicles. Potential customers can peruse cars in showrooms in Austin and Houston, but the folks who work there can't discuss pricing, much less conduct sales. And once customers have managed to purchase a Tesla vehicle and have it shipped to Texas, they can't take it in for repairs -- they have to have technicians in Fremont, California evaluate the vehicles remotely, then Tesla sub-contracts maintenance to companies in Texas.

That's a headache for buyers, and in a state that places a premium on individual liberty -- not to mention start-ups -- legislators might see that as outrageously cumbersome.

Of course, there is a second option: Tesla could push the envelope at its Texas showrooms, forcing the Texas Automobile Dealers Association to sue. In court, Musk & Co. might be able to play the poor, put-upon upstart, which could persuade judges to rule in its favor -- judges who might be easier to woo than legislators. 

Are you a fan of existing franchise laws? Or would you like to see them revamped for Tesla? And if legislatures won't revamp those laws, what's Tesla's best strategy for effecting change? Sound off in the comments below.

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