GM- Backed Bill Could Block Tesla in Indiana

Thinking Highways
By Thinking Highways February 25, 2016 15:43

GM- Backed Bill Could Block Tesla in Indiana


A bill supported by General Motors could block Tesla Motors from selling its cars in Indiana.

The bill, by Rep. Kevin Mahan, R-Hartford City, Ind.,could ban auto manufacturers from selling directly to consumers. The bill seems tailored to shut down Tesla, a manufacturer of all-electric vehicles whose direct-sales strategy runs counter to the traditional franchise dealer model. Tesla operates a showroom at the Fashion Mall at Keystone, Ind.

The House on Feb. 2 passed a version of House Bill 1254 that would send the issue to a study committee. But a proposed amendment to the bill would bypass a study committee and block direct sales starting Jan. 1, 2018. The Senate Commerce & Technology Committee is scheduled to take up the bill during a hearing at 9 a.m. Thursday.

Indiana lawmakers are pushing the bill as Tesla is planning to unveil a product that will compete against a new all-electric vehicle from General Motors. Tesla earlier this month announced it will begin accepting preorders for its Model 3 car on March 31 with an expected delivery of late 2017.

The Model 3 is expected to cost $35,000 before tax incentives. That’s significantly cheaper than Tesla’s other all-electric vehicles such as the Model S sedan and Model X crossover, which can cost more than $100,000. That price tag also puts the Model 3 in the same category as General Motors’ soon-to-come Chevy Bolt, which is expected to sell for $30,000 after tax breaks.

“General Motors is trying to kick us out of the state for purely competitive reasons,” said Todd Maron, general counsel for Tesla. “Their Chevy Bolt will be competing against our mass-market car, so they have timed this bill specifically so once we start selling the Model 3 against their Bolt, we can no longer sell in the state.”

Neither Mahan nor Sen. Jim Buck, R-Kokomo, a co-author of the bill and chairman of the Commerce & Technology Committee, could immediately be reached for comment. General Motors has facilities in Marion, which is in Mahan’s district, and Kokomo, which is in Buck’s district.

Overall, General Motors has four facilities and 49,000 employees and retirees in Indiana.

Chris Meagher, a spokesman for General Motors, said existing Indiana law is unfair to automakers other than Tesla because it prohibits companies from selling cars directly to consumers if they have existing franchise dealers. That means General Motors, Ford Motor and other automakers couldn’t use Tesla’s business model in Indiana if they wanted to.

“GM believes that all industry participants should operate under the same rules and requirements on fundamental issues that govern how we sell, service and market our products,” Meagher wrote in an email.

Meagher also noted that Tesla could continue selling cars in Indiana even if HB 1254 passed.

“Tesla could open a franchised dealership with an independent operator in Indiana today, but instead they insist that the state must first provide them with unique rules and special exceptions to suit their own business interests,” Meagher said.

But Tesla has been unwilling to depart from its business model in similar battles across the U.S. The closest it has come so far was a 2013 compromise in Virginia in which Tesla agreed to apply for a single dealership license. The Palo Alto, Calif., company has faced similar struggles in Michigan and Texas. It is licensed to sell cars in 20 states, including Indiana.

Tesla CEO Elon Musk seems to delight in his efforts to blow up the traditional auto sales model rather than operating within that system, said Rebecca Lindland, an analyst at Kelley Blue Book.

“They’re really the rebel child and they love that,” Lindland said. “They are an incredible industry disrupter, and that has its pros and cons.”

Among the pros, she said, is that Tesla saves money by bypassing dealers and selling directly to consumers. But if Tesla is ever going to become more than a niche player, Lindland said, the company might have to use franchise dealers.

“The reality is when you sell millions of vehicles a year, you have to diversify,” Lindland said. “You have to have those dealers. You’ve got to be able to service all of those clients. Looking down the road, does it make sense for Tesla to try and keep all of this? Other companies have tried and they weren’t able to.”

For now, Tesla’s sales volume is a tiny fraction of the major automakers. There are only about 500 Tesla owners in Indiana. HB 1254 could threaten the company’s ability to expand beyond a niche presence in the state.

“It’s clearly singularly aimed at us because we are, as far as I know, the only manufacturer who’s selling directly in the state of Indiana,” Maron said. “This is a clear attempt to remove us from the marketplace.”

Thinking Highways
By Thinking Highways February 25, 2016 15:43