Tesla Motors Inc (NASDAQ:TSLA)’s sales may be rising. But the electric carmaker is facing stiff challenges from auto dealers over its sales and marketing models. Tesla Motors Inc (NASDAQ:TSLA) sells its high-priced luxury cars over the Internet, which franchise dealers consider a threat to their existence, report Julie Bykowicz & Angela Greiling Keane of Bloomberg.
Tesla vs. franchise dealers
On the one hand, the Elon Musk-led company is fighting dealers. On the other, its Model S car has come under investigation after three battery fires. And the trouble worsens because he hasn’t been particularly good at lobbying. Between 2003 and 2012, auto dealers have spent more than $86.8 million on state elections, according to data from the National Institute on Money in State Politics. They have also poured $53.7 million into the federal election races, according to the Center for Responsive Politics. In contrast, Tesla Motors Inc (NASDAQ:TSLA) has spent less than $500,000 on federal and state politics in the same period.
That gives auto dealers an upper hand, being highly influential at the state level. Dealers argue that their business model is better for consumers as well as automakers. Consumers have a place to go for service and dealers take sales costs off the balance sheets of automakers. They have a strong influence even in Washington. The National Automobile Dealers Association spends about $3 million every year on lobbying. Tesla Motors Inc (NASDAQ:TSLA) had close to zero budget for federal lobbying over the past two years.
So, what did Tesla do?
To counter dealers’ cash and influence, the Palo Alto-based automaker came up with a unique strategy. In North Carolina, the company was prohibited from opening showrooms. And things got worse when the state Senate was about to block online auto sales. Then Elon Musk came up with an idea that proved more influential that dealers’ money. He dropped a Model S at the capitol and asked Republican governor Pat McCrory and other lawmakers to test drive the car. House Speaker Thomas Tillis hailed the car. He said it gave him the same feeling as test-driving a Mustang Boss when he was 23. Tillis never voted on the bill, ending anti-Tesla legislation.
Unfortunately, the same trick didn’t work in Texas, where auto dealers poured in nine times more money during 2012 elections than Tesla Motors Inc (NASDAQ:TSLA). Elon Musk went to Texas with a pro-Tesla bill. There too, he offered lawmakers a Model S to take for a spin. Austin Democrat Eddie Rodriguez sponsored the bill to allow the company to sell in Texas.
Rodriguez considered it a risky proposition because he usually receives support from dealers, and supports them in return. But Rodriguez said the Model S is a great product. So, he plans to propose a compromise in the next session, where Tesla Motors Inc. (NASDAQ:TSLA) can sell directly to consumers until its annual sales hit 5,000 units in Texas. Then, the company will have to shift to a dealership model.
Tesla Motors Inc (NASDAQ:TSLA) shares rose 2.01% to $126.67 in pre-market trading Tuesday.