How The Government Is Holding Elon Musk And Tesla Back From Changing The World
Aided by a report outlined by one of America’s top financial institutions, Quartz painted a picture on Tuesday of what the future of the auto industry would look like with a thriving Tesla, Elon Musk’s electric car company.
“Goldman [Sachs] envisages a scenario where there are a total of 6 million electric vehicles sold in 2025,” wrote Quartz’ John McDuling. “Tesla would capture 55 percent of the market, selling 3.3 million units, or about 5.4 percent of total auto sales globally that year.”
Even then, as Quartz notes, Tesla would likely be only the ninth largest automaker on the planet. Nevertheless, Tesla’s rise is very much an event that the auto industry would rather not witness, particularly under CEO Elon Musk’s current model of growth for the carmaker.
Like most executives at relatively young companies, Musk attempts to cut out much of the fat that his competitors are accustomed to in order to stay lean and competitive. For Tesla, that means going around the middle man (your run-of-the-mill dealership) and selling its cars directly out of its own stores, one of which the company set up at Garden State Plaza mall in Paramus, NJ.
That particular store, however, will be forced to be shut down by April 1, after New Jersey governor Chris Christie, seemingly pushed by auto dealers across the state, upheld laws that prohibit car manufacturers from selling their models directly to customers, which essentially crushed Tesla’s business in New Jersey.
Unfortunately for Tesla, the company is no stranger to such pushback, either. Its stores have been shut down in Arizona and Texas, as well, as dealerships across the country engage in near crusade-like fashion to push for Tesla stores to be shut down by the same type of laws that have been upheld in New Jersey.
For critics, Tesla’s fate is just another example of auto dealers harnessing their lobbying power to tilt politicians their way. For the auto dealers, such laws have every right to be upheld for the good of the customer. “The reason these laws are in these states is so that it protects the consumer,” Rhett Ricart, president of Ricart Automative dealership in Ohio, told Bloomberg.
But Ricart’s comments seem strange, given that visits to Tesla’s stores have been touted as an experience that is as consumer-friendly as any. In fact, there is evidence to suggest that Musk’s company provides the best service for any car-shopping customer.
“At its stores, there are no hard-charging managers pushing a sale on unwitting buyers, no haggling over price, no hurt feelings,” wrote Had Mouawad in The New York Times.
“Designed by the same executive who developed the first Apple stores, the stores are more art gallery than auto shop. Pleasant ambient sounds replace the cackle of impact wrenches.
Buyers strolling about the brightly colored showrooms can learn about the company's lithium-ion batteries and advanced electric-drive technology. They can pick their car's colors, trims and options on touch screens.”
Indeed, Mouawad’s assessment of the buyer’s experience at Tesla stores does not paint the picture of anything that consumers would want to be “protected” from. That’s also without the most important part: Customers there can purchase a car that has been ranked the safest and most energy efficient in the US, full stop.
Regardless of where Tesla’s product ranks amongst other competitors, though, its mere existence is a positive for drivers. The pure idea of new competition is not only the main catalyst that keeps any capitalistic society going; it is the one thing that can make complacent, incumbent powerhouses bow towards consumers. New, competent competitors keep businesses honest, forcing established companies to return to the question of, “What can we do for the customer?” rather than being driven only by profit.
Simply put, new competitors like Tesla force companies to change, and that’s something the big boys of any industry are always reluctant to do. Besides, it’s much easier to take advantage of ancient legislation to ensure startups a much bumpier road to the top than they ought to. Therein lies the irony of the whole Tesla vs. New Jersey controversy.
Auto dealers are right to claim that the state should not have invoked common sense and allowed Musk to sell his emission-less cars at Tesla’s two stores in Paramus and Short Hills. That’s because the laws that Governor Christie upheld, which date back as far as the 1930s, when allowing car makers to not have to sell through independent dealerships, would have made dealerships obsolete.
Now that auto dealerships collectively form a well-established industry, with US dealers of new cars and trucks generating revenues of $676.4 billion in 2012, there is, by all accounts, no need for such protection from the government.
States that have recognized how poorly such laws suit the 21st century, like Washington, have altered their laws, making it possible for Tesla to sell its vehicles without a fuss. In states like New Jersey, Arizona and Texas, however, dealers are able to put their millions of dollars in campaign contributions to use, pushing politicians to uphold outdated laws in situations where they might do otherwise.
Ultimately, the mere fact that such laws are still allowed to exist is what truly stands in the way of Tesla moving forward smoothly. Until more politicians are willing to ignore the wishes of lobbying auto dealers, things are likely to stay that way.
Photo credit: WENN