Elon Musk, chief product architect and CEO of Tesla Motors Inc (NASDAQ:TSLA) attacked New Jersey Governor Chris Christie in connection with the approval of the regulation approved by the state’s Motor Vehicle Commission that prohibits automakers from selling directly to consumers.
In a letter to the residents of New Jersey, Musk pointed out that Gov. Christies promised that regulation will be put to a vote in the state legislature. However, Musk said when the auto dealers lobbying for the ban of selling cars directly to consumers realized that they will not succeed under a legislative process, “they cut a backroom deal” with the governor and “pass a regulation that is fundamentally contrary to the intent of the law.
“The New Jersey Motor Vehicle Commission, composed of political appointees of the Governor, ended your right to purchase vehicles at a manufacturer store within the state,” wrote Musk to the residents of the state.
Tesla Motors Inc (NASDAQ:TSLA) was compelled to stop selling its electric cars in New Jersey effective April 1 as result of the approval of the regulation. New Jersey is the third state in the country including Arizona and Texas that prohibit the direct sale of cars to consumers.
Musk explains history/purpose of franchise laws
Musk emphasized that dealer franchise laws, which were originally implemented for a just cause are now being twisted to an unjust purpose. According to him, existing automakers originally sold franchises to generate capital and gain a salesforce, and the franchisees made further investments (money and time) to improve their dealerships.
Musk said, “That’s a fair deal and it should not be broken,” but later on dealerships sought protection from state legislatures because big automakers later engaged in pressure tactics to repurchase their franchisees at low prices, which is the primary reason why the existing franchise laws across the United States.
He pointed out that the intention of the law was “simply to prevent a fair and longstanding deal between an existing auto company and its dealers from being broken, not to prevent a new company that has no franchisees from selling directly to consumers.” He added that the franchise laws in most states are clear and reasonable, but written in an overzealous and ambiguous manner in a few states.
According to Musk, Tesla Motors Inc (NASDAQ:TSLA) is a new company and it has no existing franchisees. He added that the auto dealers have more influence and resources and seeking to force the electric car manufacturer to sell though dealerships.
Auto dealers’ conflict of interest
Musk explained that Tesla Motors Inc (NASDAQ:TSLA) did not chose to sell its vehicles through auto dealers because they have “fundamental conflict of interest” between promoting gasoline-powered cars. He emphasized that gasoline-powered cars represent virtually of the revenues of auto dealers, and electric cars almost nothing.
He added that it is more difficult to sell a new technology car from a new automaker such as Tesla Motors Inc (NASDAQ:TSLA). “Inevitably, they revert to selling what’s easy and it is game over for the new company,” stressed Musk.
Furthermore, Musk noted that auto dealers make a lot of profit from service, which is a bigger conflict of interest because electric cars require less service compared with gasoline cars. According to him, electric cars do not require oil, spark plug, or fuel filter changes, tune ups, and smog checks.]
Musk emphasized, it is a principle within Tesla Motors Inc (NASDAQ:TSLA) that it “should never attempt to make servicing a profit center.” He added, “It does not seem right to me that companies try to make a profit off customers when their product breaks.”