Texas is the country’s second-largest state in terms of population, with an estimated 27.4 million people. It ranks only behind California. And, it has long been known as a place where entrepreneurs are celebrated.
So, why is there so much bad blood between Texas and Tesla founder Elon Musk?
This past week, Texas brought back a $2,500 tax incentive for the purchase of an electric vehicle. That means Texans can receive up to $10,000 in tax breaks, including federal incentives, for purchasing a car that plugs in rather than runs solely on gasoline.
But, Texans will have to purchase something other than the country’s most famous electric vehicles. The incentive only applies to vehicles purchased from car dealers in Texas, and Tesla only sells online.
It’s tried twice to get the Texas Legislature to give it permission to operate the Tesla way, but it simply can’t get a break. Just a few weeks back, a Tesla-backed proposal to allow any automaker to sell to consumers failed to move forward..
To be sure, Texas has showrooms in Texas, as well as a service center, and there are Teslas on the road. But to own a Tesla in Texas, owners have to go through a multi-step process that includes buying the car online, paying state sales tax to Texas, registering the vehicle in Texas, and arranging financing if the owner isn’t paying upfront.
On the surface, the decision by Texas to keep out Elon Musk’s company makes no sense. He’s one of the world’s most notable figures, just the kind of go-getter that Texans admire. If the legislature wants to give people a break to buy electric vehicles, why wouldn’t it allow Texans to buy the buzziest ones?
I talked about this last week on Texas Standard, the public radio magazine program heard on stations across Texas. Listen to my interview here.
The answer lies in the power of the Texas Automobile Dealers Association as well as a cultural bias against Musk and his California-based company.
The situation demonstrates just how hard it is going to be for Tesla to achieve its ambitious goal of becoming a mass market automobile manufacturer without some of the country’s most populous states.
The power of Texas car dealers
Let’s look at some numbers. Texas has more than 1,300 franchised auto dealers in 300 communities. That’s as many dealers as the Toyota and Lexus brands have in the United States.
Those dealers employ nearly 92,000 people, and the franchises pay more than $3.5 billion in taxes and fees to the state. And, the TADA makes it very clear where it stands on Tesla.
“California-basaed Tesla has gotten legislation filed in Texas that seeks to unravel the motor vehicle franchised dealer system, in favor of direct sales by manufacturers. Direct sales will mean no competition on vehicle price and service and a greatly reduced retail and service network,” TADA says on its website.
“That’s not good for Texas or Texans.”
The mention of California is deliberate. Anyone in Texas or California will tell you about the rivalry between the two states. In the past 10 years, Texas has boomed as California has struggled. Between 2013 and 2014, more than 33,000 Californians moved to Texas, out of 250,000 who left the state.
But there’s something else at play, too: loyalty. Down South, there’s a saying, “Dance with the one that brung you,” and Texas is definitely doing the two-step with a partner it knows well.
The role of General Motors
Texas is home to a massive General Motors factory in Arlington, outside Dallas, employing 4,000 people. Automotive history buffs might recall that in 1992, GM chose Arlington over its Willow Run factory outside Detroit. in a showdown that pitted Texas against Michigan.
GM has a new electric vehicle coming up, the Chevrolet Bolt, which goes on sale in August. The Bolt is expected to compete with Tesla’s much hyped Model 3, which marks its bid to bring down the price of its electric sedans and make them available to a much bigger audience.
Texans can use their $2,500 state tax incentive to buy a Bolt, and in doing so, the state is giving a boost to a vehicle that as of now has not gotten as much attention as Tesla or even a Musk tweet.
This is no casual battle. This spring, Tesla’s market capitalization (the total value of its outstanding stock shares) surpassed that of General Motors.
As we told you last week, Musk cut his ties with President Donald Trump over climate change, leaving the presidential advisory councils on which he was participating. GM CEO Mary Barra, although reaffirming the company’s belief in the danger of climate change, is remaining on Trump’s business council.
Gazing in a crystal ball
The Texas legislature’s decision is really a look into the future. Will car dealers’ clout continue to keep Tesla from lucrative markets? Or will Musk figure out a way around them?
Musk isn’t known for making compromises, but eventually that may have to be his solution. And a path out of his predicament could be to partner with a luxury car company which has a franchise network in the states where he’s been barred.
He may decide that his direct to consumers business model is more important than sales volume. But, it doesn’t matter how good his vehicles are if people have to jump through hoops to buy them, and even more important, miss out on financial incentives.
Millennials, who are already skittish about committing to automotive purchases, may decide to bypass his brand no matter how intrigued they are by his personality.
Musk is about to send his biggest rocket ship into space. Finding a solution to selling cars in Texas, and elsewhere, is a challenge that will determine his company’s future.