By Brian Kennedy

 

Tesla announced that it would be relocating its headquarters in California and moving to Austin, Texas.[1] The company is building a factory there with the hope of it being completed by the end of year.[2] According to Elon Musk, Tesla’s CEO, the company’s plant in Fremont, California will remain operational and will continue to expand.[3] However, the company faces a major problem in Texas because Tesla “won’t be able to sell directly to residents in the state.”[4] Due to Texas law Tesla “must sell their vehicles to independently owned car dealerships, which then sell to consumers.”[5]

Additionally, it appears that this barrier isn’t going away anytime soon. Lawmakers made the determination “not to pass legislation that would allow automakers to sell directly to Texans.”[6] The opportunity to change these laws does not seem to be available again until 2023 when lawmakers meet again, but as for now these franchise laws remain the same.[7] This delay is largely due to Texas’ legislature meeting every other year for 140 days.[8]

This is not the first time; however, Tesla has encountered this problem.[9] In 2014, Tesla faced a lawsuit in Massachusetts when two dealers and the Massachusetts State Automobile Association attempted to block the company “from selling luxury electric cars directly to consumers in the state, enabling it to bypass traditional dealerships.”[10] There Tesla Motors MA, a “wholly owned subsidiary,” was essentially conducting a display inside of a mall where individuals could learn about Tesla’s vehicles and actually view them.[11] The court additionally clarified that “[n]either of the defendants is affiliated in any way with the plaintiffs.”[12]

The court ultimately found that the plaintiffs lacked standing on the issue and held that “[t]he law ‘was intended and understood only to prohibit manufacturer-owned dealerships when, unlike Tesla, the manufacturer already had an affiliated dealer or dealers in Massachusetts.’”[13] There the plaintiffs were unaffiliated and therefore not within the coverage of the law.[14] Here Tesla earned a favorable result.

Now as Tesla builds its new factory in Texas, however, residents may be inconvenienced by their purchasing options.[15] They may need to purchase Tesla’s vehicles in a different state, or have it processed in a different state.[16] If paperwork is processed in a different state “[t]he car is then shipped to one of Tesla’s service centers in the state, where the buyer can pick it up.”[17] Tesla facilities in Texas also cannot process or place online orders made by Texans.[18] “One buyer noted his paperwork had been FedExed to and from a Tesla Store in Nevada for completion.”[19] These restrictions will ultimately place residents in a difficult position.

Texas law also impact companies such as General Motors and Toyota.[20] Tesla experiences these difficulties in other states as well such as New Mexico, South Carolina, and Connecticut.[21] There are also several states that “restrict the number of dealerships that Tesla can have in the area.”[22]

Ultimately, Tesla’s decision to move to Texas appears to be beneficial for the state as the company plans to hire approximately 5,000 workers.[23] However, it appears the company will be waiting on a decision from Texas lawmakers as to whether these limitations will change.

 

[1] Niraj Chokshi, Tesla Will Move its Headquarters to Austin, Texas, in Blow to California, N.Y. Times (Oct. 13, 2021), https://www.nytimes.com/2021/10/07/business/tesla-texas-headquarters.html.

[2] Kate Duffy, Tesla has to Ship Texas-Made Cars to Other States Before it Can Sell Them to Texans Because of State Laws, Bus. Insider (June 1, 2021, 8:06 AM), https://www.businessinsider.com/tesla-texas-cars-ship-out-of-state-sell-texans-2021-6.

[3] Jack Dutton, Tesla Moves Headquarters to Texas, Where it’s Allowed to Sell Cars, Newsweek (Oct. 8, 2021, 5:11 AM), https://www.newsweek.com/tesla-moves-headquarters-texas-where-its-not-allowed-sell-cars-1636881.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] See Jonathan Stempel, Tesla Prevails in Top Massachusetts Court Over Direct Sales, Reuters (Sept. 15, 2014, 5:22 PM), https://www.reuters.com/article/us-tesla-motors-massachusetts-lawsuit/tesla-prevails-in-top-massachusetts-court-over-direct-sales-idUSKBN0HA29620140915.

[10] Id.

[11] Massachusetts State Auto. Ass’n, Inc. v. Tesla Motors MA, Inc., 15 N.E.3d 675, 677 (Mass. 2014).

[12] Id.

[13] Stempel, supra note 9 (quoting Tesla Motors MA, Inc., 15 N.E.3d at 688).

[14] See id.

[15] Duffy, supra note 2.

[16] Id.

[17] Id.

[18] See John Voelcker, Tesla Will Have to Ship its Texas-Built Cars Out of State to Sell Back to Residents, The Drive (May 27, 2021), https://www.thedrive.com/tech/40779/tesla-will-have-to-ship-its-texas-built-cars-out-of-state-to-sell-back-to-residents.

[19] Id.

[20] Id.

[21] Duffy, supra note 2.

[22] Id.

[23] Id.

Image Source: https://www.greencarreports.com/news/1132408_tesla-won-t-be-able-to-directly-sell-the-cars-it-builds-in-texas-to-texans

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