Blog Post

New Jersey blocks direct Tesla sales, as auto industry clings to old ways

Stay on Top of Emerging Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

New Jersey became the latest state on Tuesday to block direct sales of cars like Tesla Motor’s (s TSLA) electric Model S, following similar moves by Arizona and Texas and limitations placed on sales in other states, too. Auto companies traditionally sell cars through franchised dealerships, but Tesla has decided to pave its own path and has been building out its stores across the U.S. (and internationally) looking to sell electric cars directly to customers.

Tesla’s stores cut out the dealerships and enable Tesla to own the branding and customer sales experience. Where Tesla can’t directly sell cars to customers it can operate experience outlets that just show off the products to visitors, but don’t actually sell cars in the stores. Tesla says it needs retail outlets to educate customers because the electric car market is so new.

Green Overdrive: Tesla's New Apple Store Experience thumbnail

The New Jersey Motor Vehicle Commission approved the new rule change on Tuesday that says that cars in the state can’t be sold directly to customers from the manufacturer. Tesla said it was expecting the debate to go before the New Jersey legislature. The New Jersey Coalition of Automotive Retailers’ (NJ CAR) — which includes car dealers and the associated industry — is a group that had been pushing the commission to make the rule change. It’s reported that they spent $155,000 last year on lobbying for the proposed rule.

Tesla has two stores in New Jersey, and it’s unclear if Tesla would close those stores or just use them as customer education sites. The Tesla team wrote in a blog post that “Governor Christie’s administration has gone back on its word,” and said:

We urge the Christie administration to act in good faith and withdraw the proposed amendment, or amend it so that it reflects the true intent of the Legislature and the people of New Jersey.

The auto industry has operated with the franchise dealership model for decades, so it’s not surprising that when Tesla threatens that model, the dealers are pushing back. But the franchise dealer model also shows how old-school the industry still is, with layers of middlemen and a detachment of the product builders from the users themselves.

10 Responses to “New Jersey blocks direct Tesla sales, as auto industry clings to old ways”

  1. Interesting. The three states (New Jersey, Texas & Arizona) that
    prohibit Tesla from selling directly to the consumer have Republican
    Governors. Hmm, where is all that “free market” theory they espouse on
    the campaign trail? As their free market icon, Ayn Rand, might ask:
    “Where is John Gault?” While I cannot answer Ayn’s question, I do know
    that John is obviously not in New Jersey, Texas or Arizona. As I stated
    at the beginning, “Interesting.”

    • quiviran

      Free to choose any car dealer you want.

      I’ve thought for a while that the emergence of the electric car would lead to this. They’re much simpler devices, more like a vacuum cleaner than a standard car with and internal combustion engine. No routine maintenance, oil changes, etc. Electric motors that function for years. No reason they couldn’t be sold at Wal-Mart. I can see a low cost, Chinese-made (they’re pushing forward, not Detroit and the various state trade restrainers) car. Sensible design, more like a Scion xB than a Chevy swoop mobile, cheap to operate and readily available. No competing for showroom space with dinosaur mobiles.

      It’s over for the dinosaur-mobile industry and the fossil fuel infrastructure they depend on. It’s no longer if, only when. California forced the auto industry to electric cars in the late 1990s. The auto industry did pretty well for a first cut, but they chose to fight progress and got the law changed. Now it’s round two. The question for Americans is simple: Lead, follow or get out of the way.

    • richardkoo

      Apple products are not exclusive to Apple stores. If they were, Apple would likely violate antitrust laws. A manufacturer in the US cannot in general control the distribution of its products. That is why movie studios are not allowed to own their own movie theaters (this may be less relevant today as there are other distribution channels).

      • Manufacturers in the U.S. absolutely can control the distribution of their product. They can — and routinely do — decide who sells it. They can’t — by law — set the selling price, though MAP and other trickery has allowed enough end arounds to that such that retail-price maintenance is now quasi-legal too.

        Nothing requires Apple to sell its products outside of Apple’s stores except business sense (and carrier contracts, most certainly).

        And really, Jesus’ question is legitimate. What is to stop a law from banning Apple from operating stores? The answer is nothing. Which shows how stupid this is.

  2. Auto Worker

    Please do not conflate the auto dealers with the auto manufacturers. They have been a dead weight on the industry for decades. The laws that the dealers have managed to get passed have been almost as detrimental to the manufacturers as to the consumers.

  3. keninca

    A republican governor that is imposing job-killing regulations? Like in Texas and Arizona? States that are open for business? Big believers in the free market? How can that be?

    Oh right, big Republican car dealer campaign donors trumps ideology.