Tesla Motors, founded and headed by billionaire Elon Musk, is a corporation non grata in the state of New Jersey.
Tesla sells its popular, high-tech luxury vehicles directly to consumers, bypassing the middleman at the car dealership. It hoped to do so in New Jersey, a state with a large percentage of wealthy residents who could provide high demand for Tesla’s products.
But Governor Chris Christie’s Motor Vehicle Commission on Tuesday banned Tesla from selling its cars to customers. Like many states, New Jersey maintains a licensing monopoly for car dealerships — handing established, politically connected dealers a tire iron to clobber new competitors with.
Tesla hoped to beat that cartel by opening two direct-to-customer showrooms in the Garden State. The dealerships fought back by pushing new regulatory language designed to keep the electric-car maker out.
New Jersey is just the latest state seeking to block Tesla. Although the company has received hundreds of millions of dollars in federal and state subsidies — in the form of loans, air-pollution credits, and tax breaks for buyers — Tesla finds itself on the side of the free market when it comes to the state-by-state struggle against America’s patchwork of car-dealer protections. New York, Minnesota, Georgia, Texas, Virginia, and Arizona all have passed or are pushing new rulemaking to prevent Tesla from setting up shop.
These laws effectively target only Tesla, the sole manufacturer known for direct sales. And the company was hoping for a better outcome by working with Christie’s office to seek some relief from Jersey’s anti-consumer restrictions. But Musk underestimated the power of car dealers.
In October, when the New Jersey Motor Vehicle Commission proposed its new rulemaking, the move was cheered by the New Jersey Coalition of Automotive Retailers (NJCAR).
Tesla engaged in months of discussions with Christie’s administration, eventually coming to believe that New Jersey would delay the new mandate and allow the process to be handled openly via the state legislature.
But in what Tesla calls an about-face, the Christie administration ultimately decided to stand down, and the car dealers got their way. The Motor Vehicle Commission passed the new regulation on Tuesday. Tesla reported the ruling in a blog post:
Unfortunately, Monday we received news that Governor Christie’s administration has gone back on its word to delay a proposed anti-Tesla regulation so that the matter could be handled through a fair process in the Legislature. The Administration has decided to go outside the legislative process by expediting a rule proposal that would completely change the law in New Jersey. This new rule, if adopted, would curtail Tesla’s sales operations and jeopardize our existing retail licenses in the state. Having previously issued two dealer licenses to Tesla, this regulation would be a complete reversal to the long standing position of NJMVC on Tesla’s stores. Indeed, the Administration and the NJMVC are thwarting the Legislature and going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers. This is an affront to the very concept of a free market.
Dealership licensing in New Jersey dates to 1940. But you’d expect Christie, who claims to believe in free markets, to recognize a protectionist swindle, as he did when he took on the state’s powerful public-school teacher unions. Locking out Tesla could cost the state millions of dollars in lost sales-tax revenue alone.
“This is an issue that affects not just Tesla customers, but also New Jersey citizens at large, because Tesla would be unable to create new jobs or participate in New Jersey’s economic revival,” the company said.
There is a safety issue as well. Part of the reason Tesla prefers to sell its vehicles directly to consumers (and not through dealers) is because its technology requires knowledge of the product. A Christie spokesman justified the rule change by hinting that Tesla should lobby the legislature.
“Since Tesla first began operating in New Jersey one year ago, it was made clear that the company would need to engage the Legislature on a bill to establish their new direct-sales operations under New Jersey law,” deputy communications director Kevin Roberts said. “This administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation, and Tesla has been aware of this position since the beginning.”
Christie’s office is surely aware that reversing existing law in any state legislature is an uphill battle. Just ask the UFC about its fight to overturn New York’s ban on mixed martial arts: Backroom deals are made; bills die in committee; bills are never brought to a vote, etc. It is disingenuous for Christie to allow this regulation to be imposed by the MVC, then throw up his hands and declare, “Well, Tesla can always fight it via the state legislature.” The Christie administration just bought the car dealers a few years of breathing room (or time to pressure Tesla into allowing them to sell its cars) and slapped free markets across the face.
The move also puts a chill into anybody who hopes to get straight dealing from New Jersey’s government. Tesla already had two licenses to sell in New Jersey, so the mandate effectively reverses existing law. Why did that reversal not need to worm its way through the cumbersome legislative process, as Tesla’s will now have to?
Musk is no wallflower. Rather than succumb to the regulation, Tesla announced it will no longer sell its vehicles in New Jersey, starting in April. New Jersey residents who want to drive Elon Musk’s babies will have to venture out of state to make their purchases.
It seems Elon Musk – and the New Jersey economy – are the latest victims of Chris Christie and the notorious clout of the state’s powerful special interests. Unfortunately, we know from a legion of lemonade-stand closures and licensing abuses all over the country – not to mention other states’ efforts to kybosh the electric carmaker – that this problem is not contained to New Jersey. Tesla’s fight is one that affects us all.