Will a Shot at Tesla's Gigafactory Push Texas Car Sales into the Free Market?

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Texas -- or at least its lawmakers -- is not fond of Tesla, the electric car seller. In 2013, lawmakers blocked a bill that would have allowed the company to bypass auto dealers and sell directly to consumers. For Tesla the car manufacturer -- the one that just put Texas on the shortlist for a $5 billion gigafactory -- the response was considerably warmer, with lawmakers wooing the startup, hard.

Tesla the car seller and Tesla the car manufacturer are, of course, one and the same. How, then, to explain Texas' schizoid half-embrace? Pretty simple. On the one hand, state officials love nothing more than bagging a big, high-tech job-creating factory. On the other, lawmakers are in the pocket of the state's auto dealers, whose economic clout, generous campaign contributions and the thousands of people they employ in every one of the state's legislative districts give the industry unparalleled power in Austin.

Tesla founder Elon Musk knew this when he announced last month that Texas, along with Arizona, New Mexico and Nevada, was a finalist for the gigafactory. Now he seems to be having second thoughts.

See also: How Car Dealers and Their Lobbyists Crushed Tesla's Plan for Texas

The Texas Tribune reports this morning that the state's restrictions on where and how cars can be sold "could harm Texas' chances of landing the $5 billion lithium-ion battery plant Tesla plans to construct by 2017."

As evidence, they cite an interview Diarmuid O'Connell, Tesla's vice president of business development, gave to Bloomberg, in which he said, "If Texas wants to reconsider its position on Tesla selling directly in Texas, it certainly couldn't hurt."

Here's the thing. Three of the four states Tesla named as finalists have laws restricting the direct sales of automobiles to consumers. So does almost every state in the country. It's a anti-competitive carryover from the Great Depression, when states were trying to protect local auto dealers from all-powerful Detroit car makers. This Planet Money episode explains it all nicely.

So to say that Texas' laws are harming its chances for the factory doesn't seem right; more important are what tax benefits and economic incentives each state is willing to offer. This is Tesla playing the same game with state officials as the auto dealers, basically dangling a large amount of money in front of them and suggesting they do as they're told. The same thing's happening in New Mexico and Arizona.

However cynical the gambit, Tesla's cause is righteous. Loosen the iron grip of auto dealers, introduce something resembling a free market and maybe, just maybe, car buying won't be such a miserable experience.

Send your story tips to the author, Eric Nicholson.


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26 comments
dalmom
dalmom

I love that so many politicians talk about free markets and fewer regulations. Well, sounds like it is time to walk the talk and tell the dealerships that cars should be sold without a dealer network.

MikeWestEast
MikeWestEast

The dealers do not care about Tesla's impact in TX.  A battery operated $100K car?  They do care that other manufacturers will use Mr. Musk as precedent to bypass them.  As Mr. Musk is South African, we can forgive his threat to go to Federal court.  The courts will not touch this one reserving the mechanism for selling cars to the state. 


I keep reading about these great new batteries yet I also do not read about any Nobel Prizes in Chemistry being given for breakthroughs in understanding of the reactions.  We still use the same chemicals known in the late 18th century.  After billions in research, very little advancement in battery technology.  All the advancement has been on the demand side, i.e., cutting back on the drain.  I do not know exactly what the product of that giga factory will be, but I will assume it is not much different that what you studied in high school, no matter how old you are.

lecterman
lecterman

I highly doubt Musk and his crew would step foot in Texas after Goodhair's BS.



TheCredibleHulk
TheCredibleHulk topcommenter

That's the way it is - That's that way it goes.

kman1432003
kman1432003

Funny to see someone thinks Obama bailed out the auto industry. How people forget history so quickly.

holmantx
holmantx topcommenter

Remember back in 2009 when the Obama administration seized two of the nation’s three main domestic auto manufacturers and shut down thousands of dealerships across the country, supposedly to stabilize GM and Chrysler?  The TARP program cost tens of thousands of jobs, according to Neil Barofsky, the special inspector general for the program.  Once again our President is set to make new law by wand-waving thus granting Tesla Motors the right to sell directly to consumers in all 50 states.  Who needs Congress?

The Great Dispenser of Fairness and Equity.

Tipster1908
Tipster1908

I'd be ecstatic if Tesla was the one able to throw around enough money to bring sanity to the state-controlled car dealership industry (I don't think it can, for the record). But to imply that Tesla can make any market more "free" ignores the government subsidies that have allowed it to grow and continue to exist.

P1Gunter
P1Gunter

For the love of god, fix the damn ebay ads. You advertise ebay for Android and the ad makes Android phones unable to load the page. I get the irony but it's annoying as shit.

TheCredibleHulk
TheCredibleHulk topcommenter

One of the few things you cannot buy on Amazon.

Greg820
Greg820

I have no doubt that the major auto manufacturers desire to have these state laws rescinded so that they could operate more efficiently and close troubled and low performing dealerships.  But money talks and the dealers give it out in droves while we pay the price.  This is the kind of good 'ol boy, behind closed doors, money talks B.S. that the Tea Party SHOULD be addressing.  

holmantx
holmantx topcommenter

As Ed Wallace says, do the 4th grade math:

Last week Tesla said it would build a new battery factory that would employ up to 6,500 people and build batteries for up to 500,000 vehicles a year — and suggesting that the investment to do so might go as high as $5 billion.  On that news the business media went nuts. Tesla’s stock jumped from $212 a share to $250.

Apparently the business media is forgetting certain pertinent facts: Tesla lost $74 million last year. And the company has already warned on profits for this coming year, since its "cost structure would be increasing significantly."

6,500 proposed workers building 500,000 battery packs works out to just 79 batteries per worker per year.

Nor did most report that, as Tesla made its battery plant announcement, Germany’s BASF — a 149-year-old company and a world leader in chemical products and manufacturing — said it intended to create the next generation of electric car batteries that would be more compact, more powerful and longer lasting. According to BASF officials quoted at Bloomberg, when they do, customers will flock to lower-cost electric cars.

BASF has an annual $2.3 billion research budget, so using its own money, not that of investors, will try to make this a reality. Boring. Stock in BASF went from $81.78 to $83.17 on the news.

BASF’s commitment is a solid business plan and has the best chance at becoming a reality, because the company has the money and expertise to make it happen. That seems like the far more logical bet.

And New Jersey as well as several other states barred Tesla sales.

But fear not!  There is a petition the President is considering.  He will unilaterally pass new law allowing sales of Tesla direct in all fifty-seven states.

It's called Positive Law transformative governance.

a place where the people just don't have to worry about it.

302stang68
302stang68

@MikeWestEast  "After billions in research, very little advancement in battery technology."


Did you forget to turn you brain from the oh eff eff position to the oh en position?


No significant battery technology enhancement since the 1800's? What, does your cell phone run on nuclear-powered treadmill-running hamsters?

kfries1
kfries1

@holmantx 2009? Chrysler closed down hundreds of independent dealerships across the country and kept their own dealerships before Obama was president. When I owned one, the independents were the only ones that would service a car under warranty bought elsewhere. Thanks for pointing me to buy my next cars from Toyota!

kduble
kduble

@holmantx Catching a life preserver and getting pulled into a raft means one was "seized"?

JFPO
JFPO

So today Obama is the dictator in chief, yesterday he was feckless and weak. I can't keep up with the wing nut narrative.

kduble
kduble

@holmantx It's not unusual for new start-ups to loose money. How many years did Amazon lose money while revolutionizing the sale of books and recordings?

EdD.
EdD.

@holmantx  Dividing 500,000 by 6,500 only makes sense if this is the first large factory in the world with no support personnel, no managers, no back office, no guards, and so on. 

holmantx
holmantx topcommenter

@kduble @holmantx  

You talking about the auto unions or the bondholders? (ha!)

the taxpayer took a bath.

holmantx
holmantx topcommenter

@JFPO  he's a feckless dictator so long as he has Reid to block all legislation and impeachment proceedings.

Putin illuminated the pussy.

The incredibly shrinking President.

Sotiredofitall
Sotiredofitall topcommenter

@kduble

Face it, the company has questionable finances - 


"Most companies that play the non-GAAP game goose their numbers by excluding expenses. Tesla does this, too. It backs out stock-based compensation, for example. But the biggest kick to its non-GAAP earnings comes from an increase in top-line revenue.

The company reported third-quarter non-GAAP revenue of $602.6 million, which was about 40 percent more than its GAAP revenue. It achieved such a boost by transforming $171.2 million of liabilities into sales."

mavdog
mavdog topcommenter

@PlanoDave

Barofsky isn't a "republican shill", he is critical of the Obama response because he believes  Obama didn't go far enough in forcing the banks to divest parts of their business, and Barofsky believes the large banks should not be allowed to be as big as they are. The recession and the role they played allowed them to gain market share, they are larger today than before. He and Warren are aligned in their positions.

Barofsky also is an attorney, a trial attorney if my memory is right, not an economist.

Regardless, the point I made is accurate: the government's response to the financial crisis prevented a meltdown, it stabilized the situation, and the cost to the taxpayers will likely be very low to nothing. it was a success.

people should be applauding....

PlanoDave
PlanoDave

@mavdog  Read "Bailout" for a first hand account of the fraud and waste (waiting for you to find a way to call Neil Barofsky a Republican shill)...

kduble
kduble

I agree the company has questionable finances.

I don't agree the state ought to be stacking the deck to favor existing dealers and established companies. Let a free market sort them out!

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