Tesla Motors Inc. will end all electric car sales in New Jersey
starting April 1, after it failed to win an 11th-hour battle to
head off a state regulatory proposal making it illegal for it to
sell vehicles to consumers without a dealer.
The New Jersey Motor Vehicle Commission approved a rule change
Tuesday that would require auto retailers to have a franchise
agreement with an auto manufacturer to be granted a license to sell
cars in the state.
Tesla owns its stores, selling directly to consumers, something
that dealer groups in New Jersey and other states have fought,
primarily through legislation.
A Tesla executive said the move amounts to a "death penalty" to
its auto retail outlets in New Jersey and could encourage
regulators in other states to follow suit.
The rule, which deals with the licensing of auto dealers, would
require that a person have a franchise agreement with an auto
manufacturer to be granted a license.
Tesla's vice president of business development, Diarmuid
O'Connell, said during a conference call Tuesday that New Jersey
Gov. Chris Christie's administration "abrogated" an agreement to
hold off action on the proposal by the state's Motor Vehicle
Commission.
"This is at the very least disappointing, if not outright
outrageous what's going on with our business in N.J. right now,"
Mr. O'Connell said.
A spokesman for the governor said that administration has made
clear to Tesla that it would need legislation to establish direct
sales operations under New Jersey law.
"This administration doesn't find it appropriate to unilaterally
change the way cars are sold in New Jersey without legislation,"
the spokesperson said. "Tesla has been aware of this position from
the beginning."
Tesla has been successful in knocking down legislative efforts
in other states to block its direct-to-consumer sales.
The administrative rule change approved in New Jersey would in
effect make it illegal for the state to renew Tesla's license to
sell cars, a move that company officials said would force it to
close its two stores in the state, lay off workers and cancel plans
for future expansion.
New Jersey is now the third state in which Tesla is banned from
selling cars directly to consumers. The other two are Texas and
Arizona.
Tesla operates two stores in New Jersey with 27 employees and
had plans for more. It is unclear whether Tesla would revert the
stores to "galleries," which act as showrooms for vehicles, but
consumers can't purchase cars there.
Mr. O'Connell called the gallery option a "sub-optimal"
situation, and blamed New Jersey's dealer coalition for quietly
pushing their agenda with regulators, rather than in a public,
legislative forum. Tesla executives had only learned about the
commissioners' meeting in the last "72 hours," he said.
"Clearly, a decision was made rather abruptly and certainly
without any consultation with us," Mr. O'Connell said. "There are a
couple levels of bad faith and surreptitious behavior."
At the same time, Tesla is facing new challenges in Ohio, where
legislation has been proposed to prevent direct sales. Tesla
officials worry that the tactic taken in New Jersey could
eventually be adopted by dealer groups in other states if it works
in shutting down its stores.
"They've found it difficult to advance their arguments in the
light of day," Mr. O'Connell said. "They have increasingly gone
underground."
The dealers have said they fear Tesla's model could lead to
contagion of direct sales with other manufacturers, ending a
century of franchise operations that protect territories and the
sunk investment in large operations made by private
businesspeople.
Tesla officials defended the model, saying that the electric
technology is new and needs the manufacturer to be more hands-on in
educating its consumers.
Tesla hasn't ruled out countering the state-by-state opposition
with an appeal to the federal courts or pursing legislative action
in Congress.
"Certainly that's one of the strategies we've discussed," Mr.
O'Connell said. But no decision has been made, and the company
wouldn't likely pursue action at the federal level unless it was
shut out of one of its core markets, he said.
"We don't want to be in these dust ups," he added. "We're
fundamentally an engineering company."
Write to Mike Ramsey at michael.ramsey@wsj.com and Christina
Rogers at christina.rogers@wsj.com
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