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Tesla Woos Car-Guy Lawmakers to Counter Dealers’ Cash

Nov. 26 (Bloomberg) -- Megan Hughes reports on Tesla's efforts to allow direct to U.S. customer auto sales. She speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Tesla Motors Inc. was in trouble in North Carolina. Prohibited from opening showrooms there, it was on the way to being unable to sell cars at all when the state Senate voted unanimously to block online auto sales.

Then Tesla turned out a lobbying weapon that, in the home state of stock-car racing’s hall of fame, spoke louder than money. It parked a Model S at the capitol and invited lawmakers and Republican Governor Pat McCrory to take it for a spin.

“When you accelerate it, it was the same sort of feeling I got when I test-drove a Mustang Boss back when I was probably 23 years old,” House Speaker Thomas Tillis, 53, a Republican running for U.S. Senate, told the Raleigh News & Observer.

So ended the anti-Tesla legislation. Tillis’s chamber never voted on it.

Chief Executive Officer Elon Musk’s strategy of selling his $70,000-and-up electric car directly to customers through the Internet or company galleries has in at least seven states pitted him against franchised dealers who view Tesla’s marketing and sales models as threats to their existence.

Tesla delivered about 5,500 Model S in the third quarter, more than twice as many as it did in all of last year. It said Nov. 6 it plans to deliver “slightly under 6,000” this quarter with Musk saying demand exceeds supply. Its sales depend on access to customers, which it reaches through showrooms modeled on those of tech companies.

Photographer: Patrick T. Fallon/Bloomberg

Tesla delivered about 5,500 Model S in the third quarter, more than twice as many as it did in all of last year. Close

Tesla delivered about 5,500 Model S in the third quarter, more than twice as many as it... Read More

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Photographer: Patrick T. Fallon/Bloomberg

Tesla delivered about 5,500 Model S in the third quarter, more than twice as many as it did in all of last year.

Washington Threat

The fight with dealers isn’t the company’s sole challenge. Tesla also faces a threat in Washington, where its Model S is under U.S. investigation following three battery fires, and three workers were injured Nov. 13 at its only assembly plant in an industrial accident.

At both the state and federal level, the Palo Alto, California-based company is running a risk Microsoft faced in the 1990s, when it found itself in the midst of a government antitrust action without an experienced advocacy team to shepherd it through the system and build allies for the future.

Musk is putting his star power against one of the best connected and most experienced U.S. lobbies, which has outspent Tesla by multitudes in state capitols and often has some of their own serving as legislators.

Dealers spent $86.8 million on state election races across the U.S. between 2003, when Musk created Tesla, and last year, according to the National Institute on Money in State Politics, a nonprofit in Helena, Montana. They’ve also pumped $53.7 million into federal campaigns, the Center for Responsive Politics found.

Tesla’s investment in state and federal politics was less than $500,000, those same sources show.

Harder Terrain

“The challenge we face, of course, is that the auto dealers are very strong and very influential at the state level, among the legislatures,” Musk told shareholders in June. Dealers, he said, are “making it harder to get things done.”

James Chen, Tesla’s vice president for regulatory affairs, didn’t respond to a phone call and e-mail seeking comment for this story. Diarmuid O’Connell, vice president for business development, didn’t provide comment when reached by e-mail. Liz Jarvis-Shean, a spokeswoman, didn’t respond to an e-mail seeking comment.

New York’s Assembly this year scrapped a bill that would’ve stopped Tesla sales in that state. Virginia granted Tesla one showroom license after initially turning it down amid threats from auto dealers to sue.

Texas Loss

The showmanship that worked in North Carolina failed in Texas, where dealers spent nine times more than the company on 2012 elections and lobbying. Employees at Tesla’s Texas galleries can’t sell cars, offer test drives or discuss prices after legislation to repeal those restrictions failed to come to votes this year.

“The only people who are opposed to Tesla are the dealers,” said Massachusetts state Representative David Linsky, a Democrat whose district includes the company’s only gallery in the state, across from a Victoria’s Secret in a suburban Boston mall. “Every legislator has auto dealers in their district, and they’re out in force.”

Tesla’s strategy hinges on its sales model, said Colin Rusch, a senior analyst with Northland Capital Markets.

“They have direct control over their brand and their consumer relationships,” said Rusch, who’s based in New York and rates Tesla shares “buy.” “They’re able to put their products in the best light and there aren’t competing interests.”

Dealer Service

Dealers counter their model is better for consumers, by giving them a consistent place to go for service, and for automakers, by taking sales costs off their balance sheets.

“With factory-owned stores, if the factory goes out of business, so does the store,” said Tim Jackson, chief executive officer of the Colorado Auto Dealers Association, citing the examples of General Motors Co. brands that ended when the company was restructured in bankruptcy.

“If and when Tesla falls on hard times and shuts down, all of the service centers shut down at the same time because they are all factory-owned,” he said.

Jackson, who once got his picture with Musk at a Boulder, Colorado, reception, credited the 42-year-old with having a “degree of star-quality” to what he calls the dog-and-pony show he puts on for legislators.

Tesla brought that show to the National Conference of State Legislatures annual summit in August in Atlanta. It made a Model S available for test drives and sponsored a panel with legislators from states including Colorado, Texas and Virginia.

North Carolina

In North Carolina, the anti-Tesla bill was sponsored by State Senator Thomas Apodaca, one of three lawmakers to receive the North Carolina Automobile Dealers Association top gift of $8,000 in 2012. That year, the group spent $152,000 in campaign contributions, mostly to Republicans who control both chambers of the legislature, campaign records show.

On March 14, Apodaca filed legislation to block all automakers from selling cars over the Internet. The bill sailed through committee hearings and hit the Senate floor May 13, where it passed unanimously.

Within a week, Tesla added three North Carolina lobbyists, including Tom Fetzer, the former mayor of Raleigh and state Republican chairman in 2010, when the party for the first time in 100 years won control of both chambers of the state house.

The company loaned a car to Leilani Munter, a self-described “vegetarian hippie chick” who races cars on developmental circuits for the Nascar and IndyCar leagues.

Right to Drive

She wrote a Huffington Post essay May 23 calling the state’s legislation an encroachment “on the fundamental right of every American to choose what they want to drive,” and talked up Tesla to lawmakers during a capitol visit.

The Model S, recipient of this year’s highest performance ratings from Consumer Reports and top crash-test scores from U.S. regulators, then took the starring role.

Tillis, another recipient of an $8,000 check from the dealers, gave the Model S a solid review, as did Republican Representative Tim Moore, who described himself in an interview as “a car guy.”

“There were people here who didn’t even know there was such a vehicle as this,” Moore said.

His colleagues didn’t act on the Senate bill because “we just realized we needed to have more of a conversation about what was best for consumers,” he said.

Texas Bill

In Texas, Musk flew in to testify for the pro-Tesla bill. As in North Carolina, the company brought in a Model S for legislators to drive, and included the state in a Tesla-sponsored electric charging network that skips most of the middle of the U.S.

State Representative Eddie Rodriguez, an Austin Democrat who was impressed after driving a Tesla Roadster a couple years ago, sponsored the bill to let Tesla to sell in Texas.

“It was a risky proposition,” he said in a phone interview. “The auto dealers are a pretty powerful lobby here. I generally support dealers and they generally support me. I think it’s a really great product and I want to give them a shot with the economic model they have in place.”

Rodriguez said he plans to introduce a compromise in the legislature’s next session that would allow Tesla to sell directly to consumers until it reaches 5,000 annual sales in Texas. After that, it would have to adopt a dealership model.

Green Goodwill

In Washington, where seven members of Congress are auto dealers, Tesla has spent almost nothing on federal lobbying in the past two years while the National Automobile Dealers Association has an annual lobbying budget of about $3 million, disclosure reports show.

Tesla’s presence on Washington’s K Street is a showroom, not a lobbying shop. The company has one registered lobbyist, Daniel Witt, a former aide to Senator Dianne Feinstein, a California Democrat.

The company now is trying to avoid a U.S. recall as the National Highway Traffic Safety Administration investigates two battery fires that started after Model S cars ran over road debris. A third fire occurred in Mexico, beyond the government’s oversight jurisdiction.

“For a situation like this, they really need to be staffed up in Washington,” said Howard Marlowe, a lobbyist for 35 years and past president of the American League of Lobbyists.

“They need to be protecting their interests with the safety board, and with investors, by showing they’re doing everything they can in Washington to maintain goodwill with key people in Congress,” he said.

What Tesla lacks in lobbyists it makes up for in star power, said Bill Allison, director of the Sunlight Foundation, a nonprofit money tracker in Washington.

Musk is “one of the few green success stories because he actually has a marketable product,” Allison said. “That kind of goodwill with an administration interested in environmental energy is more important than any other kind of lobbying.”

To contact the reporters on this story: Julie Bykowicz in Washington at jbykowicz@bloomberg.net; Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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