Elon Musk Can't Sell His Teslas in Texas

In six states, it's illegal to walk into a company-owned store and buy a car.


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"It makes no sense that an American manufactured vehicle would be so challenging to get," says Tesla owner Matt Holm. "You have to jump through so many hoops."

When Elon Musk launched the first Tesla sports car in 2008, he didn't just set out to create a mass market for electric vehicles; Musk wanted to disrupt the entire auto industry by cutting out the dealership middleman and selling his cars directly to consumers.

Tesla's sales approach has resonated with customers who want a more interactive car buying experience. Holm, a realtor based in Austin, Texas is one of those Tesla converts. He spends a lot of time on the road driving clients in his Model S. He loves the fact that his vehicle doesn't need much maintenance and can be charged overnight in his garage.

But when Matt went to purchase his Tesla, he couldn't just walk into a store and buy one.

"I actually had to go online, configure it, and order it sight unseen," says Holm. "It was like I was a spy or something getting some James-Bond car delivered."

Unlike the big car companies, Tesla doesn't have a network of independent dealerships that sell its cars. The company runs its own showrooms, but in Texas—along with Connecticut, Michigan, Louisiana, Utah, and West Virginia—the government makes it illegal to walk into a Tesla store and buy a car.

Tesla employees at these showrooms aren't even allowed to give pricing information or to direct customers to the company's website. Test drives require a special permit from the Texas Department of Motor Vehicles.

Almost every state has some sort of restriction on directly purchasing cars from manufacturers. The purpose of these franchise laws, which date to the 1930s, is to prevent car buyers from cutting out the middlemen—a big political constituency. The Lone Star State has nearly 1,300 franchised car dealerships employing about 100,000 people.

The National Auto Dealers Association (NADA) has repeatedly argued that the current system of franchised dealers is necessary to protect consumers and ensure fair competition. In a speech before the Automotive Press Association last October, NADA chairman Jeff Carlson stated that consumers preferred the dealership sales model and that dealership networks were "the best, most efficient, and most pro-consumer way of selling new cars and trucks."

But if car buyers really preferred going through third-party dealers, why do they need government protection?

Car manufacturers have tried to sell straight to consumers prior to Tesla. In the late 1990s, Ford attempted to circumvent the dealerships in Texas by starting its own stores and selling used cars through their own company website. The Texas Department of Transportation ruled that this violated the state's franchise laws and ordered Ford to shut down operations.

Ford was also hit with a $1.7 million state fine. The following year, then Texas Governor George W. Bush signed a law that strengthened protections for the dealership cartel.

Now Musk is taking his own shot at selling direct to consumers. According to figures from the Texas Ethics Commission, Tesla has spent over $1.2 million on Texas lobbyists in the last five years as part of an effort to eliminate the direct sales ban.

Rep. Jason Isaac, a Republican state legislator from Dripping Springs, Texas, introduced a bill in the 2017 legislative session that would get rid of car dealership rules. "It's truly not a free-market approach," says Isaac. "What my bill basically says is that a manufacturer of an automobile can sell direct to the consumer if they want to."

But Isaac has come up against the the politically connected Texas Auto Dealers Association (TADA), which opposes any efforts to change franchise laws. TADA claims that allowing Tesla to sell directly to consumers is a violation of "true free market" principles by giving Musk and Tesla "a monopoly just for them."

Lawmakers didn't act on Isaac's bill this session, making it the third legislative defeat for Tesla's reform effort in Texas.

But Elon Musk's campaign to remake the car industry is a hint of big changes to come. Google plans to bring its autonomous vehicles to market and even Apple, which pulled off one of the greatest retail success stories of the last 20 years by opening its own network of stores, is working on its own car. If Silicon Valley succeeds in its quest to takeover this nearly trillion dollar industry, the dealership model may not last.

"I think consumers are going to start demanding this more and more as they realize, 'Wait there's an autonomous vehicle coming and I can't buy it? Why is that?,'" states Isaac. "We've got to find some free market solutions that allow those companies to sell direct to their consumers."

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