Local Dealers Pan Tesla's Online Sales, Apply Legislative Pressure

Tesla tried to have Texas law changed, but was outspent by car dealerships.

September 12, 2013, 2:40 AM

Sept. 12, 2013— -- Tesla Motors sells its popular electric cars through its website rather than local dealerships, a business move that has made it the target of legal battles backed by powerful car dealership lobbying groups that founder Elon Musk says he will fight in federal court if he needs to in order to operate his business.

The car company lost a difficult legal challenge in Texas earlier this year, in part because the company was steamrolled by the dealership association that poured money into elections and lobbying to preserve their own business, according to a new report released this week by a Texas government watchdog group.

Tesla, which was started by PayPal founder Elon Musk in 2003, has seen its stock soar and its market value rocket to $20 billion after it posted its first profitable quarter earlier this year. A report from Texans for Public Justice released this week showed the level of that opposition by a powerful group of car dealers.

Tesla has faced resistance from dealership trade associations across the country as it has expanded its stores and sales in recent years. Musk, responding to the state-by-state legal challenges told Automotive News in April that he was prepared to go to federal court if he could not win at the state level.

"If we're seeing nonstop battles at the state level, rather than fight 20 different state battles, I'd rather fight one federal battle," Musk said, explaining that he could either lobby for federal legislation or bring a federal lawsuit in hopes of winning the right to operate the way he wants to.

In most states where Tesla has begun operating, car dealership groups have lobbied to change laws in their favor.

In North Carolina, car dealerships lobbied earlier this year for legislation that would ban online car sales and force the public to buy cars through licensed dealerships, not from manufacturers. The measure in North Carolina failed to go through.

Similarly, dealership-backed legislation that would ban manufacturers from selling directly to consumers was introduced in New York in June but the bill was never voted on before the 2013 legislative term ended, according to Automotive News.

Car dealerships also pressured local government officials in Massachusetts to not grant a license to Tesla to open a store in Natick, but the town's selectmen sided with Tesla and granted the license, allowing sales of the cars, according to the Metro West Daily.

The state-by-state battles for the right to sell cars online have mostly gone in Tesla's favor - at least until Texas. Unlike other states that already permit direct sales, in Texas, state law prohibits manufacturers from selling directly to consumers.

Because of the unique law in Texas, Tesla stores there "are legally prohibited from offering visitors a test drive, quoting them a price or even directing them to Tesla's website," according to the report by Texans for Public Justice.

Tesla has set up showrooms and "galleries" around the country, including ones in Austin and Houston, where consumers can view the cars before making their purchases online. 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 attempted to have the Texas law changed earlier this year, but the company's efforts were quashed by lawmakers who took in more than $2.5 million from car dealers in the 2012 election cycle, TPJ reported.

The report, titled "Car-Dealer Cartel Stalled Musk's Tesla," points out that the Texas Automobile Dealers Association (TADA) spent more than $700,000 lobbying against Tesla's efforts during the 2013 legislative session.

Sixty percent of all current lawmakers in Texas collected money from TADA in 2012, according to the report. Only 17 House members did not receive money from the group.

In comparison, Musk spent between $250,000 and $565,000 on lobbyists, and an additional $7,500 in campaign contributions.

Tesla declined to comment on the Texas legislation, and the TADA did not return calls seeking comment.

Diarmuid O'Connell, Tesla Motors' vice president of business development, told ABC News earlier this year that Tesla does not want to go through dealerships to sell its car because only its staff can properly educate the public on what makes electric cars and Tesla cars unique.

"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."

ABC News' Susanna Kim contributed to this report.

ABC News Live

ABC News Live

24/7 coverage of breaking news and live events