- New York Democrats are hoping to push through a statewide bill that could strip Tesla of its right to sell cars directly to customers in retaliation for CEO Elon Musk’s support of the Trump administration. The chances are favorable, since the party controls both the legislative and executive branches of the state government. Of the more than 172,000 fully electric vehicles currently registered in New York, every second one is a Tesla.
Democratic lawmakers in New York are attempting to eliminate a waiver that allows Tesla to sell cars in the EV-friendly state there in retaliation for CEO Elon Musk’s backing of the Trump administration.
In 2014, the state government in Albany banned automakers from bypassing conventional car dealers to sell directly to customers. Out of the entire car industry, Tesla was granted the sole exemption, which let it grandfather in five stores.
Now state Democrats are questioning that move.
“Why should we give them a monopoly?” state senator Patricia Fahy said, according to a report in the New York Times on Sunday.
Co-sponsor of a bill currently moving through both houses of the state legislature, Fahy called Musk “part of an administration that is killing all the grant funding for electric vehicle infrastructure, killing wind energy, killing anything that might address climate change.”
New York, whose legislature and executive are both controlled by the Democrats, is one of a handful of EV-friendly states across America. The government in Albany has set out a target to hit 100% zero-emission new vehicle sales by 2035 in the state, the country’s fourth-largest by population.
Tesla, whose customers would likely be forced to go out of state to accept receipt of a car at one of its other delivery centres, could not be reached by Fortune for comment.
Fahy’s bill is the latest repercussion from the bitter falling-out between the Democratic party and the Tesla CEO during the Biden administration. In the course of the post-pandemic inflation wave, Musk’s wealth and anti-union politics made him a target for a party looking to reconnect with its working-class supporters.
In response, the enraged entrepreneur dropped a quarter-billion of his own fortune to support the president’s campaign, despite Trump’s long-standing opposition to the EVs and renewable-energy storage that have been the hallmark of Tesla’s business.
Why doesn’t Tesla use dealers to sell cars?
For decades vehicles like a Chevrolet Silverado manufactured by General Motors have been distributed wholesale to dealers, who then marked them up in price and sold them for a small profit. These independent retailers maintained the relationship with the customer at all times, leaving carmakers to focus on areas like engineering and branding.
Thanks to the influence of dealers in their local communities, America’s heavily fragmented automotive retail market traditionally has prohibited carmakers from bypassing their distributors to sell directly to consumers. This hadn’t been an issue for most car manufacturers in the past, since going direct to consumers would have hurt their margins when cars were mainly analog.
Tesla took a different approach from the outset, eschewing independent dealers entirely. Musk recognized that cloud computing opened up all new business models only available if a brand owned the relationship with its customers and was free to mine their digital profiles for clues about what owners might need or want.
Its entire full self-driving software, the foundation for its upcoming robotaxi pilot, would not be possible without drivers sharing their data over many years to help it refine its AI model.
What does this mean for Tesla?
Under Lahy’s plan, the exemption from franchise laws could be forfeited in favor of brands like Rivian, Lucid, and Volkswagen’s upcoming Scout, which are all relying on a similar direct-to-consumer sales approach.
Now Lahy says she is “making amends” for being wrong about Musk in the past, when she had supported Tesla’s original mission to advance sustainable transportation.
The Empire State is a key market for Tesla. Most EVs tend to be sold in warmer climates like southern California, Texas, and Florida, where temperatures are more forgiving for battery ranges. New York is one of a few northern states to champion EVs—over 172,000 are already on state roads, and half are Teslas.
If Lahy and her colleagues succeed, restricting Tesla’s ability to compete in New York could deliver a sensitive blow at a time when the company is losing ground to archrival BYD.
Last week, Tesla reported first-quarter results that revealed a group operating margin of 2.1%, its worst since the second quarter of 2019. Underlying profitability at its core car business fell to its lowest level since the launch of the Model Y first turned Tesla into a trillion-dollar company on the stock market.
