Today, Tesla, the high-end electric car company, announced that it would build a $5 billion lithium battery factory near Reno to produce batteries for its electric cars. Nevada beat out four other states, California, Arizona, Texas and New Mexico, for the opportunity to host the plant. The plant is expected to provide 6,500 jobs which will be a big boost to the local economy. Nevada agreed to provide $400 million in incentives to bring Tesla to the state. The location will benefit Tesla as well because it is near the company’s assembly factory in Fremont, California and the largest lithium mining operation in the United States located in Silver Peak, Nevada.
Although the battery plant is not controversial, Tesla faces legal challenges in other areas that could have repercussions for Nevada.
Tesla’s Direct Sales Hurdle
Rather than sell through dealers, Tesla desires to sell its electric car directly to consumers and has showrooms across the country where customers can do just that. However, USA automobile dealerships have pushed back, as they do not benefit from the direct sales. Car dealerships have backed laws passed in New Jersey, Maryland, Texas, Virginia, and Arizona that prohibit or severely restrict Tesla, or any other direct-sales manufacturer’s ability to sell directly to customers.
In other states, such as Ohio, car dealers are suing to block showrooms. They argue that the direct sales model violates state automotive franchise rules. In addition, if Tesla is allowed to direct-sell, then other car manufacturers could so as well, effectively decimating car dealers. However, Tesla argues that state franchise laws were meant to regulate relationships between manufacturers and their affiliated dealers—not to prevent competition among brands. So far courts in Massachusetts and New York have agreed with Tesla. Consequently, there is proposed legislation in both states to prevent Tesla’s direct sales approach. In addition, last week in Georgia, the Georgia Automobile Dealers Association filed a complaint with the state’s Department of Revenue stating that Tesla had sold more cars from its showroom than allowed under state law.
The battle pits two well-funded and motivated groups against each other. On the one hand, car dealerships employ many people across the country and pay millions in state and local taxes. In addition, they have pumped $150 million into federal, state and local races to ensure politicians favor their causes. However, Tesla’s CEO, Elon Musk is estimated to have a net worth $12 billion and shares of Tesla were up 59% in 2014. He is also no stranger to disruptive technologies, having founded Paypal before starting Tesla. Consequently, Tesla is willing to put in the resources to fight the industry. Tesla states that the direct sales model is the only way to provide education to consumers about the new technology and that car dealerships cannot provide the information that consumers need. It is unlikely that the issue will be resolved at the state level. Tesla has already stated that it will pursue legal action in federal courts if it is unsuccessful with the states.
If Tesla fails to protect its ability to sell direct to consumers, it could hurt the Nevada battery plant’s ability to maintain its workforce.
Interestingly, while Nevada put up a huge bid to win the manufacturing plant, the states that lost the battery plant were also states that had restricted Tesla’s ability to sell in their states.