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The Tesla Ruling and Why It Matters to the Future of Electric Vehicles

Friday March 28, 2014 12:01

Earlier this month, New Jersey’s administration run by presidential hopeful Chris Cristie ruled that from April 1st, 2014,Tesla will no longer be allowed to sell cars directly to customers through its own stores. A decision that was widely criticized, not only because it was made without public hearing behind closed doors. It angered consumer organizations worrying about consumer freedom, it irritated part of the NJ Dealership Association who don’t think electric vehicles belong in their showrooms, and of course it angered Tesla. “Wired” went as far as to title “New Jersey bans Tesla to ensure buying a car will always suck.”

Beyond the immediate sentiment, what are the implications of this ruling with respect to the proliferation of electric vehicles, and – by extension – of technology metals? To find out, Tech Metals Insider spoke with Michael Thwaite, president of the New Jersey chapter of the Electric Automobile Association (EAA) and vice president of Plug-in America, and Carl Vogel, board of directors of the EAA.

“On the surface, everyone has acted to the letter of the law”, commented Thwaite. “The problem is that everyone is assuming that Tesla is an automobile manufacturer. I can see how people can make that mistake. If you look at the Tesla Model S, it looks like a car and it can be a good substitute for a car. The problem is that you can’t sell a Tesla like a traditional automobile because it is none. But it is being lumped into the same treatment.”

“The pricing model of an electric car is turned upside down compared to a conventional car. There is little money to be made on the sale of a gas car. Sometimes, dealers will sell them at a loss because at the end of the day, the service center is what makes the money for the dealership, not the sale of the car itself. This is the absolute inverse of an electric car where almost no money is to be made in servicing. Tesla has even made a point to say that they weren’t even attempting to turn the servicing centers into profit centers. People are buying the car and with it they are getting most of their servicing. To a certain extent, they are even getting their power for long distance trips as part of the purchase. As a result, dealerships can make much more money by selling the traditional car models. Why would they even bother to explain all these differences to a customer? And in fact, they don’t.”

“The ruling matters far beyond Tesla. We are all encouraging people to drive electric, for environmental and other motives. But when the NJ population goes to Tesla Motors they will see that they can no longer buy cars there. All manufacturers except Tesla Motors pretty much do not want to make electric cars, so it is in their interest to not popularize the sale of electric cars. Which is not in the interest of the first American car in a long time that people around the world actually want.”

“Now is the time to recognize that electric cars are different products, made for a different group of people. The regulations in place were designed to ensure competition but they are excluding a company from the market that is making less cars in a year than Ford makes in a day. And it excludes the consumer from the decision making process.”

Vogel added: “I don’t think the government should get involved in this, I don’t think it’s fair. We want to buy beer from one place, we may want to buy wine from someplace else. Electric vehicles are a different animal. The law is going to squash innovation.”

So what about all the other brands that also make electric cars? Aren’t they proof that the dealership model works? Thwaite disagreed: “While Nissan deserves credit for having some desire at the highest of levels, car manufacturers are still only making “compliance cars” with a range of about 80 miles. They prefer you to buy cars that also have a gasoline engine, because gasoline engines require service. The EV marketplace is very fragile and I am very much concerned that if Tesla is driven out, electric vehicles would remain on the margins, or disappear faster than they grew.”

Asked about the EAA’s objective in this dispute, Vogel explained: “We are not a political organization but we would like to support Tesla, like we support all electric vehicles, and the future of EVs.” Will the ruling be reversed? Vogel: “I think so. If people want these cars they will find ways to get them. The situation should be an eye-opener to dealerships to make changes, and to make things better for their customers all-around.”

Thwaite concluded: “What concerns me the most is that dealers are sharing a role in the current protectionism rather than rolling with the movement and becoming a valuable part of the next generation.”

By Bodo Albrecht



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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