Earlier this afternoon, I took part in a Google Hangout hosted by the Cato Institute on Tesla Motors and disruptive technologies that have entered the marketplace. Below are my prepared remarks — and, yes, I write them out because I have a terrible memory — as well as the video of the event. The Hangout was hosted by Cato’s Rebecca Bernbach. Andrew Moylan of the R Street Institute and Peter Van Doren of the Cato Institute spoke at length about the regulatory issues Tesla and other innovative technologies that have gained popularity face.
Regulatory battles over disruptive technologies have slowly made their way to Georgia. Earlier this year, for example, legislation was introduced at the behest of the antiquated taxicab industry that would have driven ridesharing services, such as Uber and Lyft, out of the state. There was a significant amount of backlash that forced the measure’s House Republican sponsor to agree to a much less restrictive substitute in committee, though it never went to the floor for a vote.
Though this regulatory battle stalled out, at least for now, the legal battle between the Georgia Automobile Dealers Association and Tesla is one that could be one of the more interesting to watch in the 2015 legislation session, which begins on January 12 and is expected to run through late March or early April.
In late-August, the Georgia Automobile Dealers Association, a powerful monopoly which represents more than 500 dealerships, filed a complaint with the state Department of Revenue alleging that Tesla had sold vehicles in excess of the legally set 150 limit — O.C.G.A. §10-1-664.1(7) — at its only manufacturer-owned store in the state, located in Marietta, a city located about 20 miles northwest of downtown Atlanta. Telsa also plans to build two more showrooms in the Atlanta area.
Derrick Dickey, a spokesman for the Georgia Automobile Dealers Association and a Republican political operative, told CNN Money, “There’s real demand for electric cars in Georgia. All we’re asking is that Tesla sell cars in compliance with the law.” The special interest group’s president, Bill Morie, said something along the same lines in a story at Automotive News. “It’s just very simple,” Morie said, “we want them to comply with the law the way others are.”
These two statements were disingenuous. The Georgia Automobile Dealers Association, which has doled out political contributions in excess of $48,000 since 2006, isn’t just asking for Tesla sell its vehicles in compliance with the law, it’s seeking prohibit Tesla from selling any cars in Georgia.
Peach Pundit editor Charlie Harper recently chided Tesla and what he deemed as faux outrage, noting, “The fact remains, the auto market in Georgia has had this barrier for decades. It’s how the market currently works.” That may be true, but the market is centered around laws that are beneficial to a certain special interest. That’s cronyism, and there’s no way around it.
Tesla argues that it’s in compliance with state law. The complaint filed by the Georgia Automobile Dealers Association makes note of sales from October to June, during which the automaker sold 173 cars out of its Marietta store. But Tesla says that its license with the state counts sales made within the calendar year, from January through December. Tesla also skirts the regulation by allowing customers to buy online from its California headquarters, though the buyer, obviously, has to register the vehicle in their home state.
Dealerships want a piece of Tesla’s business. They want to use the state to force Tesla into agreements to sell their cars. Though electronic vehicles and hybrids have been on the market for some time, sales associates at dealerships may not have the knowledge necessary to make a sale of any one of Tesla’s models. What’s more, they may be incentivized to steer prospective buyers to another vehicle from a different automaker. There’s also the middleman markup.
By selling at its own stores, Tesla avoids the middleman. Sales associates know the cars they’re selling and, obviously, aren’t going to drive customers to another vehicle made by a different manufacturer. Additionally, Tesla has a niche base of potential consumers. That’s not to say that the average car buyer can’t be swayed to a more environmentally friendly car, but the nearly $70,000 price tag for the Model S is going to scare most shoppers away.
Some Georgia legislators have realized the problem that current law presents. In the 2014 session, state Reps. Chuck Martin (R-Alpharetta), Buzz Brockway (R-Lawrenceville), and Earl Ehrhart (R-Powder Springs) introduced legislation, HB 925, that would have carved a larger exemption for manufacturers selling zero-emission vehicles to sell up to 1,500 per year. Though the clock ran out before this legislation could be considered, one would expect a similar push in the 2015 session, in which lobbyists from both Tesla and the Georgia Automobile Dealers Association will be heavily engaged.
Though they’ll need to convince Republican leadership — which controls the flow of legislation — to get behind any change to existing law, ironically, Tesla’s biggest friends in the Georgia General Assembly may be 20 or so young, free market-minded Republicans who are skeptical of big business. These legislators probably won’t need much convincing to get behind updating an outdated, protectionist law.
HB 925, however, is not a perfect solution, by any stretch of the imagination. Ideally, the restriction on manufacturer-direct sales would be eliminated in its entirety, or, at the very least, the restriction would be phased out. If HB 925 is reintroduced next session and passed as previously written, the Georgia Automobile Dealers Association will emerge with its monopoly still largely intact, but it’ll serve as a warning that legislators aren’t completely beholden to old institutions.
Still, Tesla should brace itself for deserved criticisms, including charges of cronyism. While the car manufacturer likes to talk about the free market, in 2009, Tesla received a $465 million loan at a 3 percent interest rate from the Department of Energy for production of its Model S and to build a new manufacturing plant.
Tesla also takes advantage of the $7,500 federal income tax credit available to consumers for the purchase of an electric vehicle. Georgia offers an additional $5,000 income tax credit for the purchase of an electronic vehicle.
As Georgia legislators approach this issue next year, they should seriously consider either reducing the state’s income tax credit for the purchase of an electric vehicle or eliminating it entirely. The fact of the matter is, the success of Tesla should stand on the merits of its vehicles, not credits that both distort the market and shift the tax burden.