The Pointless War on Tesla

The electric car company is being cut down by dumb regulations.

A Tesla Motors vehicle is seen on the showroom floor at the Dadeland Mall on Feb. 19, 2014, in Miami.

Want this Tesla? New Jersey won't let you have it.

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Do you want to buy one of Tesla’s electric cars in New Jersey? Well, too bad. Thanks to a new rule, which is the subject of an escalating spat between Tesla Motors and New Jersey Gov. Chris Christie, as of April 1, the two Tesla showrooms currently operating in Jersey will have to close their doors.

Why would New Jersey do such a thing? Well, Tesla's loss is a case study in how entrenched interests gain an economic advantage and then use it to tip the scales against their competition, protecting their business via regulations and prudent political donations. At the end of the day, the real loser is the car-buying public.

As any American who has purchased a vehicle knows, cars are typically sold by auto dealerships, not auto manufacturers themselves. But Tesla doesn’t work that way; it sells directly to consumers, rather than through dealerships.

[See a collection of political cartoons on the economy.]

So far, so good. But the New Jersey Motor Vehicle Commission approved a rule on Tuesday making it illegal to sell motor vehicles via any avenue other than an authorized dealership, meaning Tesla will either have to embrace the dealership model or take its wares elsewhere. Texas and Arizona have similar bans in place, while other states have varying degrees of restriction when it comes to the direct sale of vehicles.

What’s the point of making it explicitly illegal for the manufacturer to sell directly? Well, there really isn’t one. Auto dealers respond to criticism of their model with argle-bargle about monopolies and price controls, as if requiring the presence of a middleman does something to encourage price competition. While the dealer model may have made sense when it was first made official in the 1930s, commerce has changed, but the dealers have stayed the same. 

As Tesla succinctly put it in a blog post on the company’s website, preventing direct sales only helps “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.” And therein lies the real reason the debate is where it is. Auto dealerships are a powerful political constituency, since they’re everywhere, often do good things in their communities and employ lots of people. And they’re not afraid to throw money around either. As Business Insider’s Hunter Walker noted, the New Jersey Coalition of Automotive Retailers, which is exactly what it sounds like, has spent hundreds of thousands of dollars on political donations in New Jersey in just the last decade. What has Tesla given? Nothing, though the company did hire a lobbyist with ties to the Christie administration to work on its behalf.

[See a collection of editorial cartoons on Chris Christie.]

As Charles Lane pointed out in the Washington Post today, General Motors ran into a similar problem when it tried to ramp up online auto sales in the late 1990s. As Lane wrote, "a General Motors executive said publicly that 80 percent of new-car sales could be factory-direct orders made online by 2003. He forgot about the dealer lobby, which mobilized to win state bans on Internet sales by anyone except an existing licensed dealer." So Tesla's fight is partly a retread of ground that's already been covered. The dealers won then, and they're winning again.

Of course, good regulation is vitally necessary to protect the public from all sorts of negative business externalities -- think pollution, safety risks, lack of transparency. And there's something to be said for encouraging behaviors (like using electric cars!) that will do long-term good for the planet. But regulation shouldn't be used to entrench a business model simply because those who benefit from the model don't want to change. At its heart, this debate isn't even really about Tesla, which has certainly received its fair share of government support via subsidies. It's about an economic regulation that provides no benefit to the consumer and exists merely because a powerful business interest likes it that way.

So New Jersey residents can't buy electric cars – at least they can still pump their own gas. Oh, wait.