State Senate Panel Votes to Allow Tesla to Sell Vehicles Directly to Consumers

Mar 20, 2014

Calling the approach and the product innovative, a state Senate panel voted Wednesday to let Tesla Motors finally start selling its all-electric vehicles directly to consumers here. Arizona Public Radio’s Howard Fischer explains.

Would-be shoppers check out the all-electric Tesla at the company's Scottsdale showroom where, under current law, they cannot actually buy the vehicle. Legislation approved by a Senate panel would let the company sell directly to consumers in Arizona.
Credit Capitol Media Services photo by Howard Fischer

A 14-year-old Arizona law forbids car manufacturers from selling directly to consumers. Instead, all transactions have to go through independent dealers. However, Tesla does not want to have dealers. So you can go to a Scottsdale showroom, look under the hood, kick the tires and sit behind the wheel — but that’s it. Because of the Arizona law, no test drives. And the only way now to buy one of the vehicles is go to California or order one online. Hoping to boost its access to Arizona car buyers, Tesla is asking state lawmakers to approve an exception to that 2000 law so it can actually make sales here without having to go through dealers. Sen. John McComish said he’s not critical of the dealership system per se.

“It’s one of the economic backbones of our country. But, I don’t see why that should prevent someone else who has a better idea from making an effort to enter that industry without having to set up a dealer network,” McComish said.

But, Davis Bauman, general counsel to the Van Tuyl auto group, with its 30 dealerships in Arizona, said there are plenty of good reasons to not create an exception just because Tesla wants to cut out the middleman. He said dealers play a valuable role in fighting for customers when there’s a question of whether a repair is covered by a manufacturer’s warranty.

“And when a customer comes in and they need their car fixed, we get to fix the car under the warranty and we get to go fight for reimbursement, and the manufacturers are obligated to do that. So it is important for the consumers to have an advocate in that regard concerning any warranty repair that might come out,” Bauman said.

It’s not just the dealers who are unhappy. Lobbyist Mike Gardner of the Alliance of Automobile Manufacturers, which represents 12 major car makers, said they would remain stuck in the current three-tiered system. That’s because HB 2123 grants the exception to the dealership requirement only to companies that manufacture electric vehicles — and only electric vehicles — leaving out other electric car makers.

“In fact, the number one electric car in the United States today is made by Nissan, the Nissan leaf. We also have the Chevy Volt, the Toyota Prius, the Ford Focus electric. These cars are engineered exactly like the Tesla,” Gardner said.

And that, he said, is not fair. But, that complaint did not sway Sen. Bob Worsley.

“It sounds like the 12 manufacturers would like to stay with their existing dealership model. And Tesla does not want to. So you’re forcing Tesla to use the dealership model when they’ve chosen as a business model not to,” Worsley said.

There may be something else at play. The bid by Tesla comes as the company is looking to invest $1.6 billion in what eventually would be a $5 billion plant to manufacture lithium-ion batteries for its vehicles and employ 6,500 people. Arizona is in the running, along with Nevada, Texas and New Mexico. But, Tesla lobbyist Barry Aarons cautioned lawmakers they should not link the company’s requested change in vehicle sales law with who ultimately gets the factory.

“I believe that you will find that Arizona is very much in the mix. However, having said that, I don’t want anybody to think there is any type of quid pro quo here, that if you vote for this you’re guaranteeing this, or that if you vote against this you’re guaranteeing that,” Aarons said.