Tesla's Direct Sales Battle Comes to Connecticut

The electric car company might achieve victory in another state but the win should not be limited just to Tesla.


Mariordo/Wikimedia Commons

Tesla's ongoing war with state legislatures over direct-to-consumer sales continues, this time in Connecticut. Senate Majority Leader Bob Duff has proposed legislation that would allow the company to sell its cars directly to consumers, something that's not currently legal there.

The proposed law would greenlight certain car manufacturers to open up to three stores in the state. While it technically isn't exclusive to Tesla, it's written in such a way that few if any other companies would qualify. To sell direct, manufacturers can only make electric cars—and they can't have franchise agreements with any existing dealerships.

If it wasn't already clear this legislation was designed specifically to benefit Tesla, note that a spokesman from the company, Jim Chen, was at the press conference unveiling the bill.

"Because of the unique technology that goes into a car and because of their made-to-order design, our business model does depend on the ability to sell cars directly to our customers," Chen said. "These customers can in turn take solace in Tesla's direct accountability for every sale."

One of Duff's selling points is that all the tax revenue that could go into Connecticut's pocket is instead going to nearby states, like New York, that allow Tesla sales.

"We know that consumers have choices, and if they don't have those choices in Connecticut, they'll make that choice in another state," he said.

Loosening economic restrictions is, of course, a good thing. Should the legislation pass, Connecticuters will have increased access to a wider array of cars. But critics such as auto manufacturer General Motors (G.M.) make a valid point when they argue that electric-car companies and gasoline-powered-car companies should play by the same rules.

Most states have some form of ban on direct car sales, and Tesla isn't the only one hurt by these laws. For example, G.M. launched a built-to-order, direct-to-consumer car in Brazil back in 2001. The same laws that Tesla is fighting also prevent G.M. from bringing that product to the United States. So it's understandable if G.M. is a little bitter that Tesla has been allowed to open stores and galleries in 26 states, some of which refuse to extend the same freedom to competing manufacturers.

Prohibitions on direct-to-consumer sales benefit dealerships far more than consumers. Back in 2009, the Justice Department published a study that called the arguments in favor of such laws unconvincing. Industry publications like Road and Track agree, describing the current laws "blatant protectionism."

In an article for the environmentalist website CleanTechnica, James Ayre took Connecticut's dealership association to task for its support of the protectionist laws. "They are in such an indefensible position to my eyes," he wrote. "After so many decades of people having no option other than to get ripped off by some scubby sort at a dealership, who's really going to side with them against direct sales?"

Even the Federal Trade Commission (FTC) has asked states to take a libertarian approach on this matter. As the agency wrote back in May:

Blanket prohibitions on direct manufacturer sales to consumers are an anomaly within the larger economy. Most manufacturers and suppliers in other industries make decisions about how to design their distribution systems based on their own business considerations, responding to consumer demand. Many manufacturers choose some combination of direct sales and sales through independent retailers. Typically, no government intervention is needed to augment or alter these competitive dynamics—the market polices inefficient, unresponsive, or otherwise inadequate distribution practices on its own. If the government does intervene, it should adopt restrictions that are clearly linked to specific policy objectives that the legislature believes warrant deviation from the beneficial pressures of competition, and should be no broader than necessary to achieve those objectives.

Perhaps pigs are flying through a frozen hell, because the FTC hit the nail on the head. Manufacturers should get to decide whether or not to sell directly to consumers without the government mandating they go through a middle man. And picking and choosing certain companies or industries for special treatment is arguably even worse than a blanket prohibition. While the Connecticut law is potentially a step in the right direction, there's no good reason to single out Tesla; states should let any manufacturer who wants to sell direct-to-consumer.

[Read our previous coverage of Tesla's battle over direct-to-consumer sales in New Jersey, Georgia, and Michigan.]