Lone Star State Renegade
Tesla vs. TADA.
Tesla Motors, seller of the much desired Tesla Model S, is no foreigner to the realm of legislative battles. Within more than a few states, including New York and North Carolina, Tesla has managed to win lawsuits and prevent blockage of their non-dealership sales technique, resulting in more of the electric luxury cars on the road than ever.
Unfortunately, Tesla seems to have hit a wall in Texas. Mainly due to the efforts of the Texas Auto Dealers Associate (TADA), who insisted Tesla’s sales would hurt family-owned dealerships in Texas, Tesla was unable to gain exemption from the laws that prevent in-state sales through non-franchised dealers. As a result, Tesla has been forced to partake in some frustrating, and some downright silly, sales techniques in order to serve the nearly thousand or so Texan Tesla Model S owners without breaking franchise laws.
For example, the “galleries” Tesla operates within Texas are absolutely forbidden from allowing interested parties to test drive a car. Tesla employees also can’t name actual prices or refer customers to out-of-state stores. The most they can do is direct customers to Tesla’s website and state that the Tesla Model S is “around the same price as other luxury cars.” Even if a buyer is initially happy to overlook the limited information Tesla can provide (and many people aren’t), their complications won’t end after the purchase of the car. The car must be handled as an out-of-state transaction, and even Tesla service centers located in Texas are forbidden from displaying the Tesla logo or advertising publicly that they will work on Tesla cars. The Model S cars that are dropped off at buyers’ homes arrive in an unmarked truck without instruction (and remember, no one has test driven them), and without any final touch-ups to rid the car of road grime or similar faults. Since the transaction is technically an out-of-state purchase, the sale also results in higher interest rates than non-Texas buyers, disqualification from the buyback program, and the arrival of an uninspected car with no plates and the sales tax unpaid.
So why did Tesla fail in Texas? Elon Musk, Tesla CEO, has recently guided two bills through the Texas legislature in order to build a rocket launching facility in southeastern Texas to support his SpaceX program with little opposition, yet his $345,000 payment to lobbyists failed to push the House or the Senate to hold chamber-wide votes on legislation to repeal the restrictions on Tesla Motors. The resistance was largely due to the $780,000, more than double what Tesla paid, given by TADA and other car dealers. TADA also wisely focused their money on 26 lobby contracts, while Tesla avoided direct political contributions. According to the TFPJ (Texans for Public Justice) report last month, if Tesla plans on succeeding in 2015, Musk will have to send his money flow into the political spectrum.
What franchised Texas car dealerships fear is the direct-to-consumer sales technique that Elon Musk brings to the table. Much like Apple — whom he has repeatedly pointed out as his sales inspiration — Musk has chosen
Tesla struggles with Texas legal hurdles
to forgo the hard sell, commission driven sales techniques of ordinary dealerships, opting instead for uniform prices and what he calls a more “educational approach.” As he told ABC News in August, “We actually train people to educate. We always wanted to be a really low-key kind of friendly environment, where we’re not constantly trying to close deals.” It’s impossible to ignore this direct opposition against the stereotyped middleman dealership sellers, whom Musk believes are prejudiced against electric cars, and unliked by most customers.
Musk also told the Texas Tribune that “Texas is a free-enterprise state that prides itself on being the freest in the nation — I think that’s a good thing.” When even electricity providers in Texas are subject to competition, it’s hard to disagree with Musk’s statement that “The laws that are in place to protect the big established auto dealer groups are very un-Texas.” Musk knows that the dealers are powerful allies in local political campaigns, but remains hopeful that having the public favor will lead to his eventual success, since he believes that if the legislatures continue to vote against what Musk believes is the majority’s desire, it is a perversion of justice.
Bill Wolters, the president of the Texas Automobile Dealers Association responded to Musk’s accusations by saying, “This happens all the time. Someone wants an exception to the franchise laws. If we made an exception for everybody that showed up in the legislature, before long the integrity of the entire franchise system is in peril.”
Wolters insists, too, that the only thing Texas ever asked from Musk was to comply with the franchise laws everyone else has to follow, and that Tesla would in fact fare better selling through a network franchise, one that would be of their own choosing.
While the franchise system once made sense as a way to deal with the capital-driven evolution of the auto industry with storing, marketing, and servicing cars, it has also resulted in higher prices for buyers. In fact, distribution can make up about 30 percent of a car’s final price. The internet has been largely responsible for making direct sale logistics much easier, resulting in more industries choosing to sell directly to the customer.
On the other hand, dealer associations across the state argue that consumers receive better service from franchised dealerships, particularly in the areas of warranty and lemon-law claims, than they would from factory-owned stores. They also argue that the franchise laws and licensure laws have worked well over time to protect the consumer. Typically, dealers are the ones who provide important services such as final inspections, detailing of vehicles before delivery, customer education and service during and after sales. Whether or not the Tesla business model can also achieve these services should be a major factor of whether or not the Tesla business model has long-term merit.
Published on March 16, 2014
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Direct Sales Model Seeks To Change Car-Buyer Experience.
Tesla has set out from the beginning to challenge everything in the auto industry. Tesla’s CEO Elon Musk characterizes himself as an outsider selling a an electric car the auto industry has said it couldn’t build or sell and he set up a network of dealers and chargers all owned by his company. The vertical integration might be something a founding titan like Henry Ford might have appreciated, but it has run into problems in 21st century automotive retail business world.
The issue is state-by-state franchise laws, which set up the conditions for the retail sale of automobiles. They have a long history, rooted in protection for local businesses against potential predatory practices by the deeper pockets of a factory-owned store. Consumer protections are also a part of the franchise system, in theory guaranteeing local recourse for any issue a consumer might have with a product that could have been produced on the other side of the globe.
Tesla argues that the model, like the auto industry itself, is dated and not reflective of new world of electric cars and online ordering. In addition, Tesla says as a start-up it poses little threat to larger, established dealerships and as a purveyor of online pure electric cars, it needs factory control to ensure the educational message about this new technology is fully transmitted.
As Musk told the Automotive News recently, “We’re in a tough spot because I’m not fundamentally opposed to franchising, but I think it’s really difficult for a new company with a new technology to be franchised. It’s not possible to effectively sell a new technology like electric vehicles, for a dealer to do that, without undermining the story behind gasoline cars.”
He added that once Tesla sales reached a certain threshold, said five percent of new car sales, then he would be more comfortable moving to a franchise system. To that end Tesla has supported bills in several legislatures authorizing their direct-sales model with limited success. Musk has also said he might seek national legislation that would override state laws against direct vehicle sales by the factory.
Here’s the state-by-state status of Tesla’s efforts, as compiled by Automotive News:
- In California, its home state, Colorado, Virginia and new Hampshire Tesla factory dealerships operate without trouble.
- On the other end of the spectrum, in Arizona, Texas, Maryland, Massachusetts and, most recently, New Jersey, Tesla is banned from setting up dealerships, limited its presence or sued to get it booted out.
Tesla has battles on several fronts
- In a slew of other states, Tesla’s model is being or has been challenged by legislation or regulation, including Washington, Minnesota, Ohio, New York and North Carolina.
- Tesla’s dealer status is less clear in several other states, including Oregon, Nevada, Missouri, Illinois, Indiana, Florida, Georgia and Pennsylvania.
- The remaining states (28 in all) don’t have Tesla dealerships yet.
- Of course, even without a dealership, you can arrange for the purchase of a Tesla online.
The most recent activity was in New Jersey, where the state’s motor vehicle commission ordered Tesla’s two stores in the state to close after a new rule on dealership licensing was adopted. Tesla claimed Gov. Chris Christies administration has promised to delay the regulation, which was favored by the New Jersey Coalition of Automotive Retailers. The governor’s office responded that it had indicated its position was that Tesla and the car dealers needed to find a legislative solution to the issue.
According to the National Automobile Dealers Association, 48 states have restrictions on factory-owned dealerships. In addition, Automotive News reports that NADA has said it would oppose any national legislation on the issue.
Meanwhile, Tesla is shifting some of its focus to selling the Model S in Europe and Asia while gearing up for sales of its second model, the SUV-like Model X, in the U.S.
Check out new contributor Spencer Blohm’s in-depth look at Tesla’s debacle in Texas here.
Photos by the manufacturer
Published March 15, 2014
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And May Reveal More About the Hurdles EVs Face Than He Meant
Energy Density Limits EVs
After a fire apparently caused by a Tesla Model S hitting some debris on the road, Tesla CEO jumped into the media fray with a letter addressing the incident. While Musk’s defense of the safety of the Model S, particularly in relation to a gas-fueled car, is well-taken, part of his letter responding to the fire (which was followed by two other fires soon after) also revealed one of the ongoing hurdles faced by electric vehicles. In spite of EVs’ great efficiency, their “fuel” doesn’t approach the density of gasoline. Here’s the key portion of Elon’s letter:
Had a conventional gasoline car encountered the same object on the highway, the result could have been far worse. A typical gasoline car only has a thin metal sheet protecting the underbody, leaving it vulnerable to destruction of the fuel supply lines or fuel tank, which causes a pool of gasoline to form and often burn the entire car to the ground. In contrast, the combustion energy of our battery pack is only about 10% of the energy contained in a gasoline tank and is divided into 16 modules with firewalls in between. As a consequence, the effective combustion potential is only about 1% that of the fuel in a comparable gasoline sedan. [As printed in AutoWeek magazine]
As Musk noted, the combustion energy of the Model S battery pack is only about 10 percent of the energy contained in a typical gasoline tank. But it is not only the combustion energy of a battery pack that is significantly lower than gasoline, but it’s energy density, particularly when looked at on an energy/kg basis. According to a good summary on Science 2.0, gasoline has an energy density of 44 MJ/kg while lithium-ion batteries are about 1/16th of that. In a nutshell, that helps explain why it takes only a few gallons of gasoline to take a car the same distance that would require several hundred pounds of batteries in an electric car.
The Science 2.0 author adds – and I would agree – that the energy density issue does not negate the value of EVs or their technology, it merely points out the challenges of the real world. Of course, Musk can counter that his $80,000+ Model S can take you more than 250 miles, but for those looking at electric cars in the price range of an average car, the real world limit on a charge is closer to 100 miles at best. The energy density issue remains the challenge that battery developers must overcome, along with cost issues, in order to offer an electric car that is a true alternative to today’s efficient gas and diesel cars.
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Tesla’s next model, labeled X, has been delayed
The headlines are not very positive. Elon Musk of Tesla contesting a negative review in the New York Times and delaying his next car, the Model X. Founder Henrik Fisker leaving his namesake EV company, which hasn’t produced cars for months. EV startup Coda Automotive laying off most of its staff and presumed almost out of business. Nissan Leaf sales declining year-to-year. the Chevy Volt being written off as a failure by many in the media because of failing to meet super-ambitious sales objectives and being seen as a financial drag on the company’s revival.
Overseas China has struggled with its “new energy” vehicles sales, falling short of government goals. The head of GM Europe complains that government representatives have clamored for electric vehicles, but have had a tepid response to the Ampera (the Opel version of the Volt). BMW announced it will offer free conventional vehicles to assuage range anxiety for purchasers of its electric i3 when it’s introduced next year.
While these headlines paint a grim picture for those who see the electrification of the automobile as a critical component for controlling the warming of the planet, the reality of the situation is not quite so negative.
The early market adoption of plug-in vehicles (pure battery electrics and those with internal combustion engines to supplement their electric drivetrain) is actually outpacing the adoption of hybrid vehicles, which after 12 years have become mainstream vehicles in many areas. The Nissan Leaf, the poster child for Nissan’s commitment to electric vehicles, topped 50,000 cumulative sales worldwide last month and is just starting to ramp up vehicle and battery production in the U.S. That shift in production from Japan to the U.S. is expected to help drop prices on the car while the company is also working on extending the range of its battery.
Nissan, as reiterated by its CEO Carlos Ghosn as recently as this last week, remains committed to plug-in vehicles along with its European partner Renault. He indicated he thought China would be where the EV breakthrough would come. China’s goal of having 500,000 “new energy” vehicles (which includes hybrids as well as plug-ins) on the road by 2015, coupled with its centrally planned economy, may overcome the slow start up there. As of the end of 2012 only 23,000 of the new energy vehicles had been sold in the country.
Nissan is not alone, though, as every car company has vehicle electrification as part of their future product strategy. While many auto executives remain somewhere between skeptical and concerned about whether the consumer demand for these vehicles will meet planned production volumes, they are moving ahead with building the vehicles. The move is driven by auto companies’ need to meet American fuel economy standards and European CO2 reduction goals as well as similar moves around the globe.
Joining the Leaf, Volt, Tesla Model S, Toyota Prius Plug-in, Mitsubishi i, Ford C-Max Energi, Ford Focus EV, Ford Fusion Energi, Toyota RAV4 EV, Honda Accord Plug-in, Honda Fit EV, BMW ActiveE, Smart ED, Fisker Karma and Coda on the market will be new models from GM, VW, Fiat, BMW, Audi and Toyota. And others are likely to show up unannounced. Volumes may start low, but most companies are prepared to ramp up as needed.
VW’s Super-high MPG XL1
In addition to the commitment of automakers, analysts following the industry also see the EV trend gaining steam. PwC surveys automotive suppliers as well as manufacturers annually and came to this conclusion:
“Continued investment to improve upon the electric vehicle value chain, along with the pace of advancement in competing alternative fuel solutions, will ultimately determine the level of success EVs are able to achieve, says Brandon Mason, a senior analyst with PwC’s Autofacts group. “While we don’t expect one to be parked in every driveway anytime soon, there is no doubt that EVs are here to stay.”
Autofacts predicts the global market share for EVs will be 6.3 percent in 2020, which may lean heavily on China achieving its cumulative 5 million “new energy” vehicles by that year. In the U.S., President Obama several years ago challenged the auto industry to put 1 million EVs on the road by 2015, but those numbers relied heavily on the clearly over-optimistic Volt, Leaf, Tesla Model S and Ford Focus sales projections as well as contributions from the Think City and Ford Transit Connect (no longer in production) and the Fisker Nina that may never go into production.
The bottom line is that plug-in cars are may not be selling as well as some proponents would like, but they’re also not going away as some detractors might wish. The slow but steady progression towards a more electrified automobile is a path on which the industry is set. The cars will keep coming. They will keep getting better. How soon and in what numbers consumers adopt them is the only part of the equation that is not determined.
Tom Hanks has been driving the Toyota RAV4 EV for over ten years. When the Academy Award winning actor, director, producer, and electric vehicle driver wanted a second electric car for the household, however, he could not buy a new RAV4 EV. Toyota and all car makers in the U.S. had stopped making EVs. Instead, Tom Hanks purchased a Scion and had a specialty company, AC Propulsion, convert it into an electric vehicle, replacing the engine and drivetrain with an electric motor and electric drive system.
Jamie Knapp also drives a freeway speed Toyota RAV4 EV. The Toyota is charged with the 3.2 kW of solar power that graces Jamie’s house, providing for zero emission transportation. This beautiful electric vehicle is the primary car for Jamie and her husband. Jamie works at home writing about environmental and energy issues. She chairs a nonprofit group which has greatly contributed to reducing emissions – The Coalition for Clean Air. About twice monthly, Jamie needs to travel beyond the 80 mile range of her EV. Only in those situations does she use their second vehicle which is powered with gasoline.
In addition to being an environmental leader and a writer, Jamie is a musician. She has proven that an electric vehicle can have adequate storage. She has removed one of the back seats from her RAV to make room to carry everything she and her husband regularly need for gigs, including a complete PA system, multiple acoustic instruments, and an upright string bass.
TV stars Ed Begley and Rachelle Carson-Begley ride on sunlight. As a long-time champion of sustainability, Ed bought his first electric vehicle in 1970. Since 2002, Ed has been driving a Toyota RAV4 Electric Vehicle, which he charges with the solar power collected on his home’s roof. With over a 100-mile range, the RAV4 EV is perfect as the primary vehicle for Ed, his wife Rachelle, and their children. It is also large enough to carry all the home project materials and equipment used in their TV show. The couple also owns a Prius, which is handy for trips of hundreds of miles, and when he and his wife need a car at the same time. Ed also stays in shape with his other zero-emission vehicle – his bicycle.
You do not have to be famous to want an SUV that uses renewable energy instead of gasoline. Millions need a roomy vehicle and care about the future. Although dozens of new electric sedans, hatchbacks, and small urban cars are being introduced in the U.S., missing has been an SUV.
In Spring 2012, the new Toyota RAV4 EV can be ordered from dealers. Pricing has not yet been set. Tesla, in partnership with Toyota, is bringing back the popular Toyota RAV 4EV. The SUV will have a new electric drive system and use a Tesla battery pack of 5,500 Panasonic lithium nickel cells. Tesla has produced over 30 of the new RAV4 EV prototypes for test drives and extensive evaluation.
Tesla and Toyota CEOs Elon Muskand Akio Toyoda announced their intent to cooperate on the development of electric vehicles, parts, and production system and engineering support. Tesla seeks to learn and benefit from Toyota’s engineering, manufacturing, and production expertise, while Toyota aims to learn from Tesla’s EV technology, daring spirit, quick decision-making, and flexibility. Toyota is a 2 percent shareholder in Tesla.