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Business

Q&A: So Why Can't Tesla Sell Cars In Charlotte?

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David Boraks
/
WFAE
Tesla's showroom on East Independence Boulevard in Mattews. State law says Tesla can't sell cars there.

DUNCAN McFADYEN: North Carolina's Division of Motor Vehicles ruled last week that Tesla can't sell its electric cars at a store in Charlotte. That has a lot of people scratching their heads - why not? WFAE's David Boraks is with me now to talk about it.

DUNCAN: So, David, what's going on here? Why can’t Tesla sell cars in Charlotte.

DAVID: The reason is, Tesla wants to bypass dealers and sell directly to customers. State law says automakers can't do that.

It's an old law, like laws in many other states. They were enacted back in the 1950s and include a lot of protections for dealers, from the carmakers and other dealers.

In North Carolina, there can be exceptions. Anyone who wants to sell cars has to apply for a dealer permit. That's what Tesla did. But the law also lets other dealers nearby object.

Four of them did, so the DMV held a two-day hearing earlier this month in Matthews. That gave both sides a chance to present their case.

DUNCAN: So why did the state rule against Tesla? 

DAVID:  In his decision, the DMV hearing officer said Tesla didn't make its case for an exception. There were really a couple of main points. First, state law doesn't allow an exception if other dealers can show they're willing and able to sell the cars. He said three of the four were.  

And he didn't buy Tesla's arguments that dealers wouldn't be able to make money, because of its sales model.

DUNCAN: Why does Tesla say it doesn’t make sense to rely on dealers?

DAVID:  Tesla says nobody else can educate consumers about electric cars the way it can.  

Tesla’s top lawyer, Todd Maron explained that at a forum in January hosted the Federal Trade Commission. He says starting up a new car company isn't easy.

MARON: And that is all the more true for Tesla, because we're selling a new product, with a new technology, under a new brand to a public that's unfamiliar with all of it. So it should come as no surprise that the traditional distribution system used by established manufacturers is not automatically the right one for us.

DAVID: Tesla also says its technology is so different that only its own technicians are qualified to repair its cars.  

So Tesla sells its cars only online, and through its own stores in states where it's allowed. They do have a store in Raleigh. That opened three years ago when, I guess, Tesla wasn't on dealers' radar screens. There were no objections and so they were able to open without a fight.

DUNCAN: Are there other industries that work this way, that basically require a middle man?  

DAVID:  It's hard to think of another industry where producers can't sell directly to consumers. Tesla makes another point - the U.S. is the only place in the world where it can't do this.  

This is really about changing a business model - and that's really hard. We've never bought cars any other way than this. But other industries have changed - think about computers with Apple. The Federal Trade Commission actually supports direct sales. But these are state laws we’re talking about.

But Regulation can protect businesses from unfair business practices, but it also can be used to prevent new avenues of competition - or disruption. Mike Ramsey, an automotive writer at the Wall Street Journal, says that's what dealers are trying to do.

RAMSEY: They have an incredibly strong economic interest in maintaining this situation. And they are very powerful at the state level and influencing politicians. They're some of the largest contributors to state politicians on an annual basis in every state in the United States.

DAVID: Dealers are worried. If Tesla can do this, so can others. It could be the big automakers in Detroit or newcomers, like those from China.

Consumers don't have any hangups about buying directly. Surveys show most people  - probably anyone not connected to a dealership - want this. The FTC calls it the right to choose the car you buy and the way you buy it.

DUNCAN: So what happens next?

DAVID: Well, Tesla hasn't said what they'll do here in North Carolina. They can appeal to the DMV commissioner, and if they lose that, they could take it to court.

Tesla is also challenging the system in other states. We could see this wind up in federal court.