Tesla CEO Elon Musk Fires Back At Angry Auto Dealers

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TESLA STORES
The Tesla showroom is shown at the Washington Square Mall, Friday, July 20, 2012, in Portland, Ore. Auto dealers in New York and Massachusetts are suing the electric carmaker for opening company-owned dealerships, which, they say, violate state franchise laws. | AP

Under heavy criticism from car dealers, Tesla CEO Elon Musk fired back this week in a blog post published on his company's website.

Dealers filed suit against the electric carmaker last week for opening company-owned dealerships. Tesla’s stores, the dealers allege, violate state laws designed to prevent automakers from opening company dealerships that compete with independently-owned franchises.

In a blog post published Monday, Musk said his stores don't break any rules and the firm isn't seeking changes to state laws. The Silicon Valley entrepreneur also shed light on why he chose to pursue Tesla-owned stores, rather than the traditional franchise dealership model.

“Existing franchise dealers,” he wrote, “have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars.”

“It is impossible for [existing franchise dealers] to explain the advantages of going electric without simultaneously undermining their traditional business,” Musk added. “This would leave the electric car without a fair opportunity to make its case to an unfamiliar public.”

Tesla now operates 17 stores in 10 states, with another six scheduled to open this fall, according to Automotive News. The company has said its locations don’t allow consumers to buy vehicles on-site; they merely educate passersby on electric cars and give out Tesla’s website, where drivers can reserve one.

Bob O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association, told Automotive News that Tesla’s current model, if successful, could encourage other electric car makers to create a separate system that bypasses dealers. “It’s extremely problematic,” he said in an interview with the newspaper.

The National Automobile Dealers Associated said in a press conference Tuesday that it will not challenge Tesla's stores. "We support the theme of the franchise and would prefer that the manufacturer not sell direct, but it will be up to the states to pursue whatever franchise laws they have,” David Westcott, chairman of NADA, was quoted as saying in a Bloomberg report.

As the Wall Street Journal notes, Tesla isn’t the first auto company to bump up against franchise car dealers, who have “built a legal and political fortress around their businesses strong enough to survive almost any attack this side of Armageddon.”

Scott Painter had to make major changes to his car-shopping site, Truecar.com, after the service started eroding profits at independent dealerships around the country and, in late 2011, drew the ire of powerful auto dealer trade groups, according to the WSJ.

Realizing what he’s up against, Musk’s lengthy defense of Tesla’s stores Monday ended on a somewhat lofty note.

“At Tesla, we will continue to focus on the future and the future of your children, grandchildren and their children,” he wrote. “In order to accelerate the adoption of EVs, we must be able to create and execute a business model that allows us to advance the knowledge of EVs in a convenient, accessible, no pressure environment.”

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