Tesla's Direct Sales Business Model Targeted By N.C. Bill

Tesla may not be able to sell cars in North Carolina without a licensed dealer.

May 14, 2013, 12:16 PM

May 14, 2013— -- A proposed bill in North Carolina that would make it illegal for electric car maker Tesla Motors to use its direct-sales method to sell cars in the state.

The bill, which passed the state Senate in a unanimous vote Monday night, would prohibit car manufacturers or dealers from selling their cars to consumers without using a licensed dealer.

Manufacturers would be barred from "using a computer or other communications facilities, hardware, or equipment" to sell or lease a car to anyone in the state, according to the legislation.

If approved, the bill would render a car manufacturer like Tesla unable to legally sell cars in the state. Since the company bypasses traditional dealerships by selling directly to consumers and allows buyers to place their orders online, it would not meet the state's definition of a "dealer."

Tesla Motors, based in Palo Alto, Calif., and founded in 2003, made headlines when it created the first all-electric sports car, the Tesla Roadster. Tesla calls the Model S the "world's first premium electric sedan," and is priced at $49,900 to $97,900, based on battery options and upgrades.

Tesla Motors announced it turned its first-ever profit of $11.2 million for the latest quarter, and its Model S earned a rare near-perfect rating from Consumer Reports on May 9.

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Robert Glaser, president of the North Carolina Automobile Dealers' Association, which supports the legislation, told ABC News that car manufacturers have been barred from selling directly to consumers in North Carolina since the mid-1970s.

The only thing the bill changes, he said, is who qualifies as a dealer, which was updated to include manufacturers like Tesla that eliminate the use of in-state dealers.

"This bill doesn't change the law at all. Somehow, they've been selling cars in North Carolina, you know, and I don't know how it compares to that law," he said.

Glaser said ABC News that while the bill wasn't changed to directly target Tesla, the association wants the company to abide by state protocols.

"We believe that Tesla, like all the other auto dealers in the state, should get a license, appoint a dealer, fall under the protection of the Department of Motor Vehicles, and sell cars," Glaser said. 'We just want them to play by the same set of rules that the other 7,000 dealers in the state do."

Glaser said there are minimal costs associated with appointing a dealer. All Tesla would need to do is to establish a franchise agreement with the dealer and send them cars, he said. The dealer, in turn, would need to be licensed and regulated by the DMV.

The dealer would also be required to have a showroom, he said, but it may be as small as 96 square feet.

"It can be in a mall," said Glaser. "I just don't know why they don't do it."

Diarmuid O'Connell, Tesla Motors' vice president of business development, told ABC News that the bill was a "fundamentally protectionist effort to lock down the market and force us to sell through the middle man."

"We are happy to play by the rules in North Carolina right now, but what [lawmakers] are doing is changing the goal posts," he said. "And in doing so, they are eliminating a fundamental right of North Carolina residents to transact a vehicle online in the privacy of their home."

O'Connell said that it was a "mismatch" for Tesla to sell through a dealer, whom he said was primarily focused on selling gasoline vehicles.

"We're not in the business of tearing down the dealer model," said O'Connell. "We simply believe that to successfully introduce this technology to the market, it needs to be done in a focused fashion, by us."

Glaser said 49 new Teslas have been registered in the state from January to April. But the demand may soon be growing as the carmaker raises production.

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The bill seems unlikely to impact the new health of the electric vehicle company since it doesn't sell many cars in the state.

While Tesla has stores and galleries across the United States, it does not have one located in the state of North Carolina. A Tesla service center, which provides roadside assistance, service and supercharging support, is available for vehicle owners in Raleigh, N.C., according to the manufacturer's website.

North Carolina is not the only state that bans car manufacturers from selling to consumers directly. Tesla's CEO Elon Musk is also wrapped up in a battle with Texas lawmakers regarding selling its cars directly to the public.

North Carolina DMV spokeswoman Marge Howell told ABC News the bill will need to be sent to the state's House of Representatives by Thursday, before it is put to a vote.

O'Connell said that if the state passed the bill, Tesla would be open to challenging it on grounds that it violated the commerce clause.

"It's a beautiful car," Glaser said of the Tesla. "Just play by the same set of rules that all the other dealers in the state do," he said.

ABC News' Susanna Kim and Richard Davies contributed to this report.

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