Motor Vehicle Commission’s New Rule May Drive Tesla Out of New Jersey

Tom Johnson | March 12, 2014 | Energy & Environment
Electric-car maker wants to sell directly to consumers, cutting out middlemen at retail auto malls

Tesla Motors Inc. is bit of a darling on Wall Street. The manufacturer of high-priced electric vehicles saw its stock price rise to a record $248 per share last month, even with only modest growth in the sales of its cars at a pace of about 5,000 a year nationwide.

Relations with the Christie administration are not as affectionate, however. The state Motor Vehicles Commission yesterday adopted new regulations that a Tesla executive said will effectively close down its two New Jersey dealerships in Paramus and Short Hills.

The new rule was surreptitiously pushed, according to Diarmuid O’Connell, a vice president of business development at Tesla. His company had been in discussions with the governor’s office and the Legislature to block the rule, he said. They only learned about the pending rule adoption when its lobbyists spotted it a few days ago on the agenda of the MVC, he said.

“It’s effectively a death penalty,’’ O’Connell told reporters in a teleconference a couple of hours before the commission meeting. He said the new regulation will make it illegal to sell the company’s vehicles in New Jersey because its two stores would no longer be licensed to sell cars.

The new regulation, supported by the New Jersey Coalition of Automotive Retailers, is similar to bans on selling the electric vehicles at independent retailers in Texas and Arizona, O’Connell said. It reflects an unwelcome threat to a company some view as manufacturing the most advanced electric car on the market.

The dispute revolves around the company’s efforts to sell its electric cars directly to consumers, a model it says is necessary to educate buyers about the benefit of its vehicles. The model cuts out the middleman in retail auto outlets, which is a system based on selling as many cars as quickly as possible, Tesla argues.

“We don’t want to go through intermediaries,’’ O’Connell said. “They don’t have the same interest in educating consumers.’’

Kevin Roberts, a spokesman for the Christie administration, denied Tesla’s charges.

“Since Tesla first began operating in New Jersey one year ago, it was made clear that the company would need to engage the Legislature on a bill to establish the new direct sales operations under New Jersey law,’’ Roberts said in a statement. “This administration does not find it appropriate to change the way cars are sold in New Jersey without legislation and Tesla has been aware of this position from the beginning.’’

The rules could undercut efforts to promote cleaner-running vehicles in New Jersey, a strategy crucial to the state’s efforts to curb emissions and reduce pollution that contributes to global climate change, according to environmentalists. Transportation is the [link:|
biggest source of emissions] contributing to global climate change in New Jersey as well as a major source of pollution contributing to smog.

“It’s really a shakedown on the part of auto retailers,’’ said Jeff Tittel director of the New Jersey Sierra Club. “Tesla is trying to keep the price down by selling the vehicle direct.’’

In any case, the price is not cheap, ranging from $60,000 to $100,00, although the company is hoping to introduce a midrange vehicle soon. Without the middleman and associated dealer costs, those prices would rise.

Tittel, a frequent critic of Gov. Chris Christie, also blamed the Republican governor and questioned the administration’s actions. “The Christie’s administration’s deliberate failure to promote electric vehicles will not only hurt our economy and environment, but puts New Jersey at a competitive disadvantage,’’ he said, referring to efforts in other states to build the infrastructure for electric vehicles.

Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, did not return a call for comment.

The new rule also sparked criticism from lawmakers. “Today’s capricious decision may effectively shut down Tesla’s operation and force them to close their current retail establishments,’’ said Assemblyman Timothy Eustace (D-Bergen). “In the end, it will be the residents of our state, and our environment, who will lose out.’’