BUSINESS

Briggs: There's no reason for Indiana to rush a ban on Tesla sales

James Briggs
james.briggs@indystar.com
Tesla opened a showroom at the Fashion Mall at Keystone in 2013.

Sometimes it's good to kick the can down the road. This could be one of those times.

Indiana lawmakers are once again discussing whether Tesla Motors should be banned from selling cars directly to consumers.

"There will probably be a bill of some kind from somewhere this year," state Rep. Ed Soliday, R-Valparaiso, said during a recent hearing.

Soliday is chairman of the state's interim study committee on roads and transportation. The legislature earlier this year considered a bill that would have shut down Tesla's sales in Indiana. A panel tabled the issue and sent it to Soliday's committee for further consideration.

The debate centers on Palo Alto, Calif.-based Tesla's business model. Tesla sells luxury electric cars to customers without a middle man, while all other automakers distribute vehicles through dealership networks.

Dealership associations and automakers, including General Motors, want Indiana to block Tesla's direct sales. Tesla's model, they argue, puts consumers at risk because they can't turn to dealers for help in the event of problems or mechanical failures. They also say Tesla has an unfair advantage because state law prevents automakers from selling to consumers in areas where they have dealerships — which is almost everywhere.

It's a contentious conversation in Indiana, where manufacturing jobs still account for nearly 17 percent of the state's workforce and dealerships have deep ties to communities and governments. People who feel loyal to the traditional auto industry want to protect it. People who value innovation want to usher in companies such as Tesla, which opened its Indianapolis showroom in December 2013.

Soliday lamented that the debate has become a referendum on Tesla.

"I wish we could take the Tesla name off it and (determine) what is the right way to regulate automotive sales in the state of Indiana going forward, and is there a transition to a brave new world," Soliday said during the Sept. 20 hearing. "I don't know the answer to that."

Soliday's remarks reveal the conundrum Indiana and other states face when trying to regulate auto sales.

This issue is about Tesla because no one else does what CEO Elon Musk's company does. Tesla has produced some of the most technologically advanced cars in the world, with sales prices ranging from about $66,000 to well into six figures. Tesla also refuses to open dealerships, making it the lone disrupter of the franchise-dealer model.

But that might not be true for long. As tech companies look toward cars, particularly in the fledgling realm of self-driving vehicles, any number of competitors could emerge. Google, Apple and Uber are among the tech players that have shown varying degrees of interest in producing cars. What if a law pre-emptively banned those companies from selling cars in Indiana?

Rebecca Lindland, an analyst for Kelley Blue Book, said the auto industry hasn't been on the cusp of such upheaval since at least the 1970s when Congress established Corporate Average Fuel Economy standards in the wake of the energy crisis. Any legislative body that passes new regulations for auto sales now could quickly find that they're ill-conceived.

"One of the tricky things about legislation is we are desperate to avoid unintended consequences. But it's really hard to get a handle on unintended consequences when we're in a time of such new territory," Lindland said. "That's why I feel like it's so important to take things slowly, to evaluate them, to get a lot of different perspectives. We can't have any knee-jerk reactions because that could be really damaging."

Indiana has time to let innovation run its course. Tesla is not an immediate threat to automakers, dealerships or jobs.

Tesla has sold fewer than 800 cars to Indiana families, while the state's dealerships last year sold a combined $16 billion worth of new vehicles, according to the National Automobile Dealers Association. Tesla chronically falls short of production goals, suggesting it has a long way to go before scaling up to the level of major automakers.

Although Tesla plans to start selling its more affordable Model 3 next year (one impetus for a quick ban on Tesla's sales model), GM is expected to beat Tesla to the market with its all-electric Chevrolet Bolt. Both cars will sell in the $30,000 range after rebates.

Only four states have blocked Tesla's direct sales so far: Michigan, Texas, Connecticut and Utah. Protecting the franchise dealership model could mean joining a small handful of states that have signaled Silicon Valley's ways aren't welcome.

Fortunately, there's no rush to decide now. Indiana can kick that can and make a more informed decision once the new era of auto manufacturing has matured.

Call IndyStar reporter James Briggs at (317) 444-6307. Follow him on Twitter: @JamesEBriggs.