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Tesla Rides High, But Faces Formidable Foe: Car Dealers

The Tesla Model S, Motor Trend Car of the Year, is introduced at the 2013 North American International Auto Show, in Detroit in January. Tesla’s attempts to sell its cars without going through dealerships is meeting resistance.

Tesla Motors, the American maker of luxury electric cars, has been riding a wave of good publicity.

Its Model S sedan (base priced at $62,400, after federal tax credits) was just named Motor Trend Car of the Year. Reviewers at Consumer Reports gave the lithium-ion battery powered vehicle a rave.

And the company, headed by billionaire innovator Elon Musk, 41, posted a profit for the first time in its 10-year history — powered in part by zero-emission environmental credits.

But Tesla also finds itself, and its business model, under sustained attack by a formidable foe: the National Automobile Dealers Association, one of the most powerful lobbying groups in Washington with a strong network of state chapters.

The dealers say they have no quibble with the quality and allure of Tesla’s products. What they object to is the Palo Alto-based manufacturer’s efforts to sell the electric car directly to consumers rather than through independently owned dealer franchises.

Tesla’s model is often compared to the one used by consumer electronics giant Apple.

“We want to cut out the middleman,” says Diarmuid O’Connell, vice president for business development at Tesla. “We’re a bad fit for the dealer system.”

The dealers’ response?

“Buying an iPad is not buying a car,” says David Hyatt of the national association, which, along with member chapters, has taken their franchise fight to the courts and to state legislatures across the nation.

It’s a battle between a deep-pocketed interest group, which last year contributed more than $3.2 million to candidates, and a fearless entrepreneur.

And it’s just heating up.

Battles Emerge State By State

A bill being considered in North Carolina, where there are currently 80 Teslas on the road and another 60 expected, would prevent the company from selling vehicles online. In Virginia, the state denied the company a dealer license to open a store.

Texas lawmakers are expected to ignore an effort by Tesla to gain an exception to strict franchise laws that prohibit factory-owned dealerships. Last year, there were only 43 registered Teslas in the state.

In both Massachusetts and New York, legal efforts by franchise dealers to block Tesla’s efforts were rejected — including attempts to shut down three Tesla stores and two service centers in New York.

Wrote New York Supreme Court Justice Raymond J. Elliott III: “Dealers cannot utilize the Franchised Dealer Act as a means to sue their competitors.”
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