Tesla's empty threat against Texas

Maxwell Tani

Tesla just lost another battle to sell its cars in Texas.

On Monday, the automaker suffered another setback when the Texas state assembly failed to take up several bills that would have allowed the electric automaker to begin selling cars directly to consumers at a limited number of Tesla locations.

Under state law, automakers must sell cars through a third-party dealership, which Tesla has been hesitant to do.

As it became clear that the legislature would not consider the bills, Tesla took a parting shot at the Lone Star state, threatening to take the production of its future pickup truck elsewhere.

“When we do a pickup, it would be logical that we would do it in Texas,” Diarmuid O’Connell, Tesla vice president of business development, told Bloomberg. “It’s also logical to ask why would we invest major amounts of money in a state where we can’t even do business."

But Tesla's threat shows its weak bargaining position. In 2013, Tesla CEO Elon Musk told Business Insider that the automaker wants to roll out a truck within five years. Since then, Tesla has been relatively mum on anything related to the truck beyond publicly laughing at journalists who've asked about it, suggesting that a pickup is still speculative at this point.

The company has also struggled to get its other large vehicle ready for the road. Tesla has continued to delay the rollout of its SUV Model X, which is now scheduled to commence deliveries in the third quarter of 2015. Commentators have suggested that one of the potential reasons for delay would also set back a future pickup truck: weak towing capability.

It's also unclear whether Tesla is really serious about an all-electric pickup. So far, the startup carmaker has taken square aim at the luxury market with its Model S sedan. The Model X will compete with SUVs from BMW, Mercedes, Audi, Lexus, and Acura. Pickups are getting a lot more luxurious than the work vehicles of the past, but the market is also owned by Ford, GM and Fiat Chrysler's Ram Trucks. Other automakers build pickups, but these trucks are a bread-and-butter product for the Detroit Big Three — and their dominance has proved tough to crack, even by major global rivals like Toyota.

The battle in Texas is part of Tesla's nationwide push to roll back state franchise laws that protect dealerships. Most states have some form of legal protection for dealerships which place restrictions on car companies attempting to sell directly to consumers.

In Texas, Tesla once again ran into steep opposition from well-entrenched auto dealerships, which vastly outspent the company in recent elections and lobbied hard against bills that would've allowed Tesla to sell directly to consumers.

In an interview on Monday with CNBC, Musk acknowledged the challenges of taking on dealerships state by state.

"That is a difficult battle," Musk said. "I think in the end consumers want the option of going through a franchise or direct. I think in the long run we're likely to win."

The automaker has won several key victories in recent years. Earlier this year, New Jersey finally gave Tesla the green light for four outlets after a protracted debate with state dealerships and Gov. Chris Christie (R). New York, Maryland, Ohio, and Pennsylvania have all also changed laws in recent years to allow the electric automaker to sell directly to consumers.

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