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Tesla Sales Banned in New Jersey

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March 12, 2014 – Comments (3) | RELATED TICKERS: TSLA , SCTY

"Everything's illegal in New Jersey." 

Tesla couldn't catch a break in New Jersey yesterday. The New Jersey legislator voted to ban Tesla's direct-to-consumer sales model. In other words, Tesla will no longer be able to sell its cars directly to consumers in New Jersey (similar to Texas). I've already expressed my opinion on why these sorts of laws are downright absurd. If your product/service depends solely on a government-enforced monopoly, your product/service is probably pretty lousy. 

Tesla and SolarCity are both facing significant push-back from competitors not through legitimate competitive means (e.g. actually trying to develop a better product -- what a novel idea -- or offering a better value to consumers), but competitors are instead lobbying the government to add new regulations and laws that impede the ability of disruptive businesses to operate while forcefully protecting outdated and inefficient business models. 

Tesla will persevere. I think it is safe to say Tesla has a far more enthusiastic consumer base than any other auto manufacturer or dealership. States who do allow Tesla to continue its model of direct sales to consumers will be rewarded with increased economic activity. If Tesla shares take a hit as a result of this New Jersey setback, I may consider picking up some shares. 

Here is Tesla's blog post from early yesterday outlining frustrations with the Christie administration and the decision to bring this issue to the legislature rather suddenly: 

Since 2013, Tesla Motors has been working constructively with the New Jersey Motor Vehicle Commission (NJMVC) and members of Governor Christie’s administration to defend against the New Jersey Coalition of Automotive Retailers’ (NJ CAR) attacks on Tesla’s business model and the rights of New Jersey consumers. Until yesterday, we were under the impression that all parties were working in good faith.

Unfortunately, Monday we received news that Governor Christie’s administration has gone back on its word to delay a proposed anti-Tesla regulation so that the matter could be handled through a fair process in the Legislature. The Administration has decided to go outside the legislative process by expediting a rule proposal that would completely change the law in New Jersey. This new rule, if adopted, would curtail Tesla’s sales operations and jeopardize our existing retail licenses in the state. Having previously issued two dealer licenses to Tesla, this regulation would be a complete reversal to the long standing position of NJMVC on Tesla’s stores. Indeed, the Administration and the NJMVC are thwarting the Legislature and going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers. This is an affront to the very concept of a free market.
 - http://www.teslamotors.com/blog/defending-innovation-and-con...

From the Wall Street Journal, after the vote: 

Tesla Motors Inc. TSLA -1.85% will stop selling its luxury electric cars in New Jersey on April 1, after the state said Tuesday it wouldn't license the company to sell vehicles directly to consumers, bypassing franchised dealers.

The defeat for Tesla, which owns its own stores, came despite a furious 11th-hour lobbying effort. A senior Tesla executive had accused New Jersey Gov. Chris Christie of breaking a deal to hold off on a rule change requiring all car retailers in the state to have a franchise agreement with an auto maker. The New Jersey Motor Vehicle Commission approved the rule change Tuesday.

Mr. Christie's spokesman countered that Tesla knew that it was operating outside state laws.

Tesla has been battling in New Jersey and other states to defend its direct-sales model against attacks by franchised dealers representing rival brands.

Tesla's problems have their roots in decades of mistrust between independent car dealers and auto makers. Over the years, dealers have fended off efforts by the auto makers to set up company-run stores that could compete with them. The dealers have pushed for—and won—state legislation to protect their franchises.

Dealers fear Tesla's model could cause directing selling to spread to other manufacturers, ending a century-old system that protects the sales territories and investments of many independent businesspeople.
 - http://on.wsj.com/1dNZoVX

My frustrations with investments and politics, in these situations, go in an endless loop. The fact that legislative bodies can undo (or block) years of entrepreneurial efforts of a business as brilliant as Tesla frustrates the heck out of me. The ability to offer value to consumers through entrepreneurial means -- not the mandate of self-serving legislators -- should be the primary determinant of entrepreneurial success. Consumers should decide the fate of a business, not legislators. 

Believe me, I do not enjoy discussing government policies near as much as I used to years ago. I have no interest in discussing politics. In cases such as these with Tesla and SolarCity, however, it is unfortunately a necessity for us to peel back this layer as investors. I am confident in the ingenuity of the minds at Tesla and SolarCity, but this was a disappointing decision to see come out of the New Jersey legislature. 

Best,
David K

3 Comments – Post Your Own

#1) On March 12, 2014 at 10:39 AM, lemoneater (75.32) wrote:

The important question is whether NY or PA allows Tesla, if so NJ customers won't be that inconvenienced. Think Tri-State area. Also what about Delaware? Wake up in NJ, but take the ferry for a day of shopping. All those states I mentioned are within reasonable commutes of NJ depending where you are. Sometimes it is better to think in terms of regions rather than individual states.

 

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#2) On March 12, 2014 at 7:40 PM, BFS42 (< 20) wrote:

Governor Christie's idea of being biz-friendly apparently means that he will be friendly to businesses that are "friendly" to him. So let's close down sales of Tesla in NJ: Lose jobs, lose tenants occupying retail space, lose sales taxes, lose assorted other taxes & fees, etc, etc, etc.
Neither the cars nor the company will vanish. They'll just get sold in adjacent states which will reap the benefits. At least NJ will still be able to charge registration fees for all those cars sold in other states.
I am way more annoyed as a citizen of NJ than I am as a shareholder.This is simply outrageous. Instant fodder for more NJ jokes in late-night TV monologs.
Here's a Jeopardy "answer": "An automobile company successfully started from scratch in the USA, building its cars in the USA, selling cars as fast as they can be produced, receiving multi-thousand dollar deposits from buyers wishing to be put on a waiting list to purchase a vehicle not yet for sale, and exporting cars to Europea and soon to China."

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#3) On March 13, 2014 at 1:53 AM, jiltin (27.33) wrote:

Such issues are very common for growing companies, but such resistance could not stop the growth of the company (except temporary setback).

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