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Bill would let Tesla sell directly to consumers in Texas

Bob Sechler
Austin American-Statesman

Automobile manufacturers such as Ford, General Motors, Honda and others are prohibited from selling directly to consumers in Texas, but Tesla soon might get a green light to do so.

A proposed state law would carve out special treatment for certain makers of electric vehicles, allowing them to skirt strict Texas regulations requiring all auto sales to be funneled through third-party franchised dealerships.

Tesla — which is building a $1 billion-plus factory in southeastern Travis County that's expected to open late this year — is the biggest-name potential beneficiary of the special treatment, although it also would be a boon to growing numbers of lesser-known electric-vehicle makers that are following similar business models.

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Tesla's factory is taking shape quickly in southeastern Travis County. A proposed state law would allow the company to sell the electric vehicles it produces here directly to Texas buyers, without going through franchised dealerships.

If the existing regulations aren't changed, Tesla is facing the prospect of having to ship vehicles built at the new Austin-area factory across state lines first — so they don’t count as in-state sales — before bringing them back for delivery to customers in Texas who buy them.

That's because the California-based company foregoes third-party franchised dealerships and instead sells directly to consumers over the internet, a sales strategy that doesn't comply with the Texas regulations.

It has fought for years to get the rules changed, but without success so far. In the past, however, Tesla hasn't been in the midst of building a major manufacturing facility here that's expected to employ 5,000 people and spark significant amounts of follow-on investment.

"It would be a huge (public relations) black-eye for Texas" if Tesla isn't allowed to sell directly to buyers in the state when cars start rolling off the floor of the new factory, said Wedbush Securities analyst Daniel Ives, who follows the company.

Ives called Tesla's decision to build the Texas factory a "pot of gold" for the Austin area and for the state overall in terms of future jobs and investment — provided lawmakers play their cards right.

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Tesla is building a huge factory in Southeast Travis County that will serve demand for its vehicles in central and eastern portions of the United States. A proposed state law will allow the company to sell the vehicles it produces here directly to Texas buyers, without going through franchised dealers.

"There's a massive, decade-long-plus opportunity in (electric vehicles) that Tesla now has brought to Austin," he said. “The (electric-vehicle) food chain follows Tesla wherever it goes."

Still, Tesla's long-time foes in the state when it comes to the sales issue — Texas franchised dealerships — plan to oppose any rule changes once again.

“The Texas franchised dealer laws prevent a monopoly and ensure competition, bringing better service and lower prices for Texans," said Jennifer Stevens, a spokeswoman for the Texas Automobile Dealers Association. "The Texas Legislature got it right many years ago," when it first slapped down efforts to change them.

The proposed law — House Bill 4379, authored by state Rep. Cody Harris, R-Palestine — would allow makers of vehicles that are powered solely by electricity or batteries to act as dealers under the state's regulations, and thus sell directly to consumers, if the vehicles in question have never been sold in Texas before by third-party franchised dealers.

Neither Harris nor a Tesla representative responded to requests for comment.

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Defenders of the strict Texas law that prevents automakers from also owning dealerships, including the Texas Automobile Dealers Association, contend the rules safeguard consumers by preventing manufacturers from establishing monopolies. But critics have called them protectionist measures that enshrine owners of dealerships as third-party intermediaries.

As things stand, Tesla operates “galleries” in Texas that showcase vehicles and related technology but are barred from taking orders or even discussing prices. Customers here can either purchase vehicles directly from Tesla outside Texas and drive them back, or buy them online — in which case the cars are delivered to them from across state lines.

Regardless, the company's Austin-area factory, just its second in the United States and fourth in the world, will be of key strategic importance to it.

The factory will serve growing consumer demand in the central and eastern portions of the country for some of Tesla's most popular vehicle models, and it also is expected to be the launching point for the company's planned pickup, called the Cybertruck. In addition, the facility is expected to be among the first Tesla locations to have both full-scale battery and vehicle production.

“There's a 'green' tidal wave on the horizon, and this is the tip of the iceberg" for Texas, Ives said. "I will be shocked if (state lawmakers) don't change the rules" to accommodate Tesla's business model.