Tesla troubles: Progress demands an open marketplace

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Tesla troubles: Progress demands an open marketplace

By Stephen Caruso / Columnist

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America likes to pride itself on innovation. If you have a good, new idea, you have the right to try to realize it and profit from it — as demonstrated by the hit show “Shark Tank.” 

However, in reality, this idea is extremely complicated. Traditional business interests tend to obstruct these ideas, because, after all, a new and better idea will always put some people out of business. Just like how the refrigerator made milkmen obsolete, Tesla seemingly poses a similar threat. Not to milk, obviously, but to the way cars are sold. 

Elon Musk knows this all too well. Musk is a co-founder of SpaceX, Paypal and SolarCity, which are all successful and innovative enterprises. His crown jewel, though, just might be Tesla Motors, the electric car company. 

Tesla has been successful despite the derision of market experts, who attacked both Tesla’s soaring stock price and the general idea of mass-marketing electric cars. 

It’s true that Tesla’s stock is too high from speculation — Musk himself said this — and that the company still hasn’t created an electric Model-T available to any level of income. But, the company continues to trend upwards — so much that it recently reached an agreement with the state of Nevada to open a new factory, which will double the world’s output of the unique batteries used in Tesla vehicles.

Despite the positive trends, one problem continues to stand in Tesla’s way — one that is neither technical nor economical, but governmental

Unfortunately for Tesla, most states have laws barring the franchising of car  dealerships by the parent car producer. Thus, independently-owned dealerships must make sales to customers. In Ohio, for instance, car dealership lobbyists argue that Tesla’s selling of vehicles directly to customers violates these laws. Instead, they advocate that Tesla should own showrooms to present its vehicles but should not help customers order a car from a Tesla factory. The idea is to push sales to the existing car dealerships.

Why is this a problem? Dealerships make most of their money from parts and services, rather than on the car sales themselves. Tesla’s cars, or any electric car for that matter, are much simpler machines. There are no oil changes, spark plugs or timing belts, thus no extra profit for the dealerships. So, the dealerships don’t have incentives to sell electric vehicles.

Pennsylvania, for its part, has been more progressive and has allowed Tesla to open five stores in the state to sell its vehicles, which is a good start. But in other states to recently allow Tesla stores, like New Jersey and Washington, state legislatures have granted only the company an exception. This means future competitors who aren’t already present in the market, like Ford or Toyota, are out of luck, unless they want to engage in a whole new legal battle, for which most up-and-coming companies do not have the resources.

It is true that Tesla’s short-term victories will boost sales, allowing the company to profit from innovation and encourage further growth. This will create jobs, as it is already doing in Nevada, and allow for progress towards a green car for all. 

On a larger scale, though, further opening of the sales process will let any new company try to sell its car. As it is now, electric cars, while cutting down on the creation of smog, are only carbon neutral. The electricity they use has to come from somewhere, and it will likely be from burning fossil fuels. To boot, 66 percent of electricity in America comes from coal and natural gas. 

The laws must leave the market open to all competitors. Whoever can make the first completely green vehicle, not reliant on our current “dirty” power grid, such as a solar or hydrogen fuel cell vehicle, deserves the right to get it to the public as soon as possible. 

Now, we come back to the milkmen. To make this kind of competition possible, we need to reduce the power of auto dealers. Even Tesla could go under eventually if someone develops a new and better idea. But this constant cycle of creative destruction, as economist Joseph Schumpeter called it, is what makes a free market so powerful. To get in the way only forestalls the inevitable, hurting the public in the process. 

Email Stephen at sjc79@pitt.edu

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