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Tesla Stores May Be Closed After N.J. Blocks Direct Sales

By Alan Ohnsman and Terrence Dopp
March 12, 2014 12:01 AM EDT 1021 Comments
A Tesla Model S automobile, produced by Tesla Motors Inc., sits on display inside the Tesla store at Westfield Stratford City retail complex in London, on Oct. 24, 2013.
Photographer: Simon Dawson/Bloomberg
A Tesla Model S automobile, produced by Tesla Motors Inc., sits on display inside the Tesla store at Westfield Stratford City retail complex in London, on Oct. 24, 2013.

Governor Chris Christie’s administration blocked Tesla Motors Inc. (TSLA), the electric-car maker that doesn’t have franchised retail dealers, from direct auto sales in a move the company said could shutter its only two stores in New Jersey.

The New Jersey Motor Vehicle Commission, which includes members of Christie’s cabinet, unanimously approved the proposal yesterday in Trenton, delaying public comment on the matter until after the hearing. Tesla said it learned only a day earlier, after months of negotiations, that the rule change was coming to the most densely populated U.S. state, which is important for reaching customers in the New York metro area.

Christie “has gone back on his word,” Tesla Chief Executive Officer Elon Musk said on Twitter prior to the vote. “His administration, under pressure from auto dealers, may shut down Tesla in NJ as soon as today.”

Tesla is battling dealers state by state to secure or protect the right to sell its cars directly to consumers. Auto dealers in Ohio, New York, Minnesota, Georgia and elsewhere in the past year have sought to block Tesla from directly retailing its models, arguing that independent retailers are better for shoppers and owners of vehicles. Texas dealers successfully backed a law setting the nation’s toughest restrictions on Tesla. Arizona, Colorado and Virginia also imposed limits.

No Surprises

The New Jersey vote shouldn’t have been a surprise to Palo Alto, California-based Tesla, said a Christie spokesman.

“Since Tesla first began operating in New Jersey one year ago, it was made clear that the company would need to engage the Legislature on a bill to establish their new direct-sales operations under New Jersey law,” said Kevin Roberts, the spokesman. “This administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation and Tesla has been aware of this position since the beginning.”

On the commission with the three members of Christie’s cabinet are four gubernatorial appointees. The panel is led by non-voting Chairman Raymond Martinez, who was appointed by Christie, a Republican, in February 2010.

Tesla should either adjust its business model to conform with New Jersey law or seek changes to it, said James Appleton, president of the state’s dealer association.

New Jersey’s “statute is on the books to protect consumers,” he said, while “Tesla’s business model crushes competition.”

Tesla slipped 1.9 percent to $234.41 yesterday in New York, the third consecutive decline for the shares that have risen 56 percent this year.

‘Bad Faith’

“A decision was made rather abruptly and certainly without any consultation with us,” Diarmuid O’Connell, Tesla’s vice president of business development, said in a conference call before the commission met. “There are probably a couple levels of bad faith and surreptitious behavior.”

The New Jersey Commission’s vote came the same day Tesla officials met in Ohio with representatives of auto dealers to seek a compromise on a bill in a Senate committee to force Tesla to use franchise dealers if it wants more sales points in the Buckeye State.

“We’re still negotiating,” said Senator Scott Oelslager, a Republican who is chairman of the committee.

The Senate panel accepted written testimony from General Motors Co. opposing any additional dealer licenses for Tesla beyond the two for stores in Columbus and Cincinnati.

“Tesla is an automobile manufacturer, they compete with our vehicles in the market, and they should compete under the same laws we do,” the Detroit-based company said.

‘Big Business’

The maker of Model S cars that start at $71,000 has already begun talks with New Jersey lawmakers about amending the state’s law and will also consider options including litigation, said Jonathan Chang, a lawyer for the automaker. Tesla’s stores in the state are at the Mall at Short Hills and at the Garden State Plaza in Paramus.

“New Jersey is one of our larger markets for Model S and so it’s an important market for us,” he said. “But really, any market is an important market for us.”

After the decision, 14 people including Chang and Appleton spoke. The crowd of about three-dozen people was weighted in favor of Tesla supporters, with many standing up to tell stories of excellent customer service.

Thomas Moloughney, 47, of Chester, New Jersey, who said he doesn’t own a Tesla or stock in the company, attended the hearing as an aficionado of electric cars.

“This board acted purely in the interests of big business and the dealerships, but they left the people of New Jersey behind,” said Moloughney, owner of Bella Casa, a restaurant in Montclair that offers diners free electric-vehicle charging in its parking lot. “If they really wanted to be fair they would have had a public hearing.”

To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Terrence Dopp in Trenton at tdopp@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Stephen Merelman at smerelman@bloomberg.net

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