Tesla fights to open Richmond store, state’s decision expected within weeks

Published: Nov. 24, 2016 at 1:30 AM EST|Updated: Nov. 24, 2016 at 3:10 AM EST
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Tesla's design studio in Tysons Corner, Virginia. Photo NBC12.
Tesla's design studio in Tysons Corner, Virginia. Photo NBC12.
Tesla hopes to have a Richmond location approved by next year. Photo Tesla.
Tesla hopes to have a Richmond location approved by next year. Photo Tesla.

FAIRFAX, VA (WWBT) - A major roadblock preventing Tesla Motors' expansion into Richmond could be lifted before the end of the year, after a lobbying group and 11 local automobile dealers led a campaign to stop and modify the high-tech car company's entry into Central Virginia.

At issue is where exactly customers will be able to purchase Tesla's all electric vehicles – in a showroom owned and operated by the cutting edge manufacturer, or in locally-owned independent dealerships.

The state is now deciding the critical question, with the implications set to shape whether customers could be kept from buying Teslas locally, or if the super-cars will appear on more roads across the region.

The issue hinges on an arcane Virginia law, one that generally stops manufacturers from running car dealerships. The law attempts to halt powerful auto companies from owning franchises, establishments that would exert a considerable edge over smaller dealerships selling the same brands.

But Tesla doesn't franchise any of its business to local dealers, anywhere.

The company says forcing its electric cars to be sold by Richmond independent dealers would degrade tight standards of customer service, complicate its business model, and lead to poor repairs of its vehicles.

In an interview, automotive expert and University of Richmond economics professor George Hoffer called the Virginia law an impediment to free enterprise, and a barrier for consumers.

"The law at the center of this controversy is clearly anti-business, and clearly, anti-philosophical with respect to the capitalist system," Hoffer said. "With the policies we have in place now, does this mean we're denying Virginians the right, the opportunity, to buy this car?"

The controversial statute only allows manufacturers to own dealerships if no one in the area can operate a franchise, "in a manner consistent with the public interest."

Tesla successfully argued in 2013 that no dealers existed in Northern Virginia who could effectively sell its technically advanced vehicles. As a result, Virginia granted Tesla an exception to the law, allowing the company to build one showroom in Tysons Corner.

But the Virginia Automotive Dealers Association (VADA) solicited a letter writing campaign to the state Department of Motor Vehicles this year, prompting 11 Richmond-area dealers to express interest in operating Tesla franchises.

"[Virginia's laws] promote healthy competition, which is best achieved when sales outlets are independently owned," VADA spokesperson Tucker Bloom said in a statement. "We encourage Tesla to seek as many facilities as they see fit in Virginia. We simply ask they do so in accordance with Virginia law."

During an October visit to Tesla's Tysons showroom, Policy Communications Manager Will Nicholas said the company needs to own its Richmond store, in order to preserve a stress-free environment for its customers.

"In addition to developing award-winning cars, we're trying to lead the world in terms of top industry service and customer experience," Nicholas said. "And so, the showroom we're standing in now, is totally focused on education and putting the customer first."

A Tesla showroom features sweeping interactive screens, displaying vehicle specs and energy savings after buying one of its electric cars. Conspicuously absent from the showroom atmosphere, haggling.

Tesla vehicles are priced the same around the world - and the company contends introducing local dealers will potentially change its pricing, as well as disrupt a streamlined sales method.

Because all Tesla models are priced the same, sales representatives earn relatively high, steady salaries. Conversely, in most independent dealerships, incomes are earned through commissions, with employees thus incentivized to sell as many cars, as fast as possible.

Because gas vehicles typically sell faster than electric cars, Tesla has expressed concerns to state regulators that independent dealers may steer more customers towards gas engines.

"Independent dealers are not incentivized to sell electric vehicles," Nicholas said. "And many times, consumers who walk in interested in an electric vehicle are actually turned over to an internal combustion engine."

But even if local dealers devote stores exclusively to Tesla, the company still has reservations.

"If we were to introduce a middle-man to the sales process, inevitably there would be a mark-up," Nicholas said. "And there would be no reason for a customer to purchase a more expensive car from an independent dealer, versus directly from Tesla."

Tesla vehicles can be bought straight from the manufacturer's website, or from any showroom around the world.

But a Virginia official tasked with mediating the dispute said potential disruptions to a company's business model is irrelevant in deciding whether the state grants Tesla an exception to build its Richmond showroom.

Unlike Virginia, the franchise and direct manufacturer systems currently coexist in Canada and Europe. Analysts like Hoffer are now observing the shift in industry gears, and are asking for consumers to have the final say.

"I think both Tesla and the independent dealers have points," Hoffer said. "And the bottom line is, I think we should let the market decide which is the superior delivery system, franchises, or manufacturer-owned dealerships."

The decision rests with Virginia DMV Commissioner Richard D. Holcomb, who is expected to announce his ruling before 2017.

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