Tesla Just Won a Major Regulatory Battle

November 30, 2016, 10:14 PM UTC
Tesla Opens Flagship San Francisco Store
The Tesla Motors Inc. logo is displayed on a window at the company's new showroom in San Francisco, California, U.S., on Tuesday, Aug. 9, 2016. Tesla marked the opening of its largest North American sales, service and delivery center in San Francisco, a key market from which Elon Musk's electric-car maker will introduce its all-important Model 3 sedan late next year.
Photograph by David Paul Morris—Bloomberg via Getty Images

Tesla just won a battle in its multi-year war with franchise automobile dealers. The all-electric automaker and energy company is eligible to open a second store in Virginia, according to a ruling Wednesday by the state’s Department of Motor Vehicles Commissioner Richard D. Holcomb.

Holcomb’s ruling overturns a previous decision from a hearing examiner who had blocked the automaker from obtaining a dealership license.

Tesla sells its own cars directly online and through its own branded stores, not through franchised dealerships. The company has one store and service center in Virginia as well as one “gallery,” where customers can look at the cars but not buy, test drive or even discuss the price. Tesla has been trying for two years to open up a second store, where it can sells its vehicles, in Richmond.

Virginia law prohibits manufacturers from owning or operating a dealership. The state’s DMV commissioner is allowed to grant a license if a hearing determines that there is no dealer independent of the manufacturer that can operate a franchise. Tesla was initially denied the license but later granted one through a settlement agreement in December 2013.

The Virginia Automobile Dealers Association has aggressively opposed Tesla’s presence in the state. The lobbying and industry group filed a lawsuit in March after Tesla applied with the DMV to open a second store. The lawsuit, filed in March, claims Tesla and Holcomb violated a 2013 agreement that the automaker could not own or operate a second dealership in the state until August 2017.

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In his decision, Holcomb determined that there was no dealer independent of the automaker in the community that could own and operate a Tesla franchise in a manner consistent with the public interest. “Therefore, Tesla is eligible to operate as both a manufacturer and a dealer of its electric motor vehicles,” Holcomb wrote.

Holcomb’s decision centered on the “public’s interest,” including whether a dealership franchise could be profitable if it adhered to Tesla’s business model. Holcomb’s decision provides some insight into the dealership business model and how it differs from Tesla.

Tesla’s business model differs from traditional car dealerships in many ways; but specifically, Tesla sells its vehicles at uniform prices whether a customer purchases through the Tesla website or at a Tesla store. Tesla could not or would not offer “dealer discounts” or “wholesale pricing” on new cars to a prospective dealership. VADA’s own experts agreed that it would be very hard or impossible for a dealership to be profitable unless Tesla offered their cars at wholesale prices. Although many of the dealers testified that they could eventually make a profit with a Tesla dealership, they admitted that it would not be from new car sales. Those dealers indicated they could make a profit through other departments; and those areas, like sales of parts and used cars or profits on service and financing mark-ups, run counter to the Tesla business model.

Technically, Tesla still has one more hurdle: approval from the Motor Vehicle Dealer Board. But Tesla, who applauded the commissioner’s decision, sees this as a minor technicality on the path to opening its second store.

“This decision will allow Richmond-area consumers to learn about and purchase their Tesla vehicles in closer proximity to their homes. We are thankful for the many Tesla owners and Virginians for their support,” the company said in an emailed statement. “We intend to swiftly begin construction to open our new store and service center at 9850 West Broad Street and look forward to joining Richmond’s business community.”
The VADA or any other opponent to the commissioner’s decision has 33 days to file an appeal with the Virginia Circuit Court.