Market News

 June 21, 2013
Tesla to deploy local lawyers to challenge U.S. dealer laws

 Tesla Motor Inc (TSLA.O) is marshalling lawyers across the country to prepare for a "multi-front war" against local laws that risk stalling the electric vehicle maker's plan to bypass dealerships and sell directly to consumers.

Chief Executive Elon Musk told Reuters the company is facing strong opposition from local politicians and the powerful auto dealerships that bankroll their campaigns.

Over the next few months, Tesla will also bulk up its business development team, which has been charged with starting a dialogue with local politicians in several states, and Musk said he will personally devote more time to this issue.

"It's a tough battle we face," the billionaire told the Reuters Global Technology Summit on Tuesday. "We don't necessarily have all the answers. I certainly believe that if we were to go through the regular franchise system that we would not succeed."

The push for direct-to-consumer sales is part of Musk's broader strategy to combat concerns over electric cars' price, power and range. It's also critical for Tesla to reach more consumers when its new, lower-priced sedan hits the market in 3-4 years.

Musk also said a new battery-replacement system that will underpin a nationwide network of fast-service swapping stations, would entail an investment of $50 million to $100 million.

It takes less than five minutes to swap the battery pack, compared to at least 20 minutes needed to do a quick charge, Musk said. Tesla will demonstrate the system on Thursday.

Musk added that Tesla's technology would allow it to avoid the outcome of Better Place, an electric vehicle charging company founded by Shai Agassi that liquidated last month.

"Shai was very good at marketing but not so good at technology, so he didn't quite get it right on the pack swap thing," Musk said. "As long as you have the right mechanical device you can do a battery pack swap."

Tesla will first test the swap program in high-traffic corridors between Los Angeles and San Francisco as well in the Washington-New York-Boston region.

Larry Dominique, president of auto consulting firm ALG, said the battery swapping strategy would allow Tesla to preserve the resale value of its Model S sedan, which sells for $70,000 before a federal tax credit.

"The challenge is going to be infrastructure," said Dominique, also a former vice president of product planning for Nissan Motor Co's North American operations. "If I've got to go 20 miles out of the way, that defeats the purpose."

So far, investors have embraced the company's strategy and Tesla shares have nearly tripled this year.

Tesla is now beefing up its sales operations in anticipation of growing Model S sales. The company expects to have 50 stores by the end of the year, up from 34 during the first quarter.

But on the state and local level, Tesla efforts to sell cars directly to consumers have been stymied by auto dealers that account for a sizable portion of tax revenue in many states.

In 2010, auto dealers paid a total $458 million in corporate income taxes and license fees to states, compared to $296 million for automakers and parts suppliers, according to a 2012 report from the Center for Automotive Research.

Musk said there is less incentive for sales people to push electric cars on buyers since they don't require as much servicing, a key revenue stream for dealers.

"It's harder to sell and then they make less money on service, so for sure we would be the last thing they would sell," he said.

Tesla faces stiff dealer opposition in North Carolina as well as Massachusetts, New York, Colorado, Virgina and Texas.

"We need to apply more resources to this because we're finding that it's a multi-front war," Musk said. "They outnumber us at least 10 to 1, maybe 20 or 30 to 1.

He added: "At the state level, very often, the car dealers are the biggest funders of local state politics. That's been a problem for us obviously."