The Editorial Board, USA Today
In taking on entrenched auto dealers, upstart carmaker becomes a champion of free enterprise.
These days there is nothing particularly unusual about high-flying tech companies. They often take off like rockets, sometimes falling back to earth, but sometimes achieving lofty heights and reinventing whole industries.
Thirteen years ago, for example, Facebook was a couple of guys in a dorm room. Today, its valuation of $404 billion is larger than the annual economic output of Thailand.
But electric car maker Tesla, which briefly surpassed General Motors this week to become America’s most valuable auto company, brings something new to the conversation. No company has had to fight harder for the right to do business as has Tesla.
When Tesla introduced its pricey Model S in 2012, the company was banned in much of the country from selling its cars directly to consumers. Its business model called for cutting out the middleman, but state laws required it to go through entrenched networks of dealers.
After years of litigating and legislating, Tesla has managed to eliminate, or get around, many of the laws. But it is still barred from opening sales and service centers in Texas, Michigan, Utah and Connecticut. Several other states, including New York and New Jersey, have placed caps on the number of centers it can have.
Despite these restrictions, Tesla has made remarkable progress, if not yet profits. Its Model S has rivaled high-end cars offered by the likes of Mercedes Benz and BMW. And its $35,000 Model 3, is set to begin limited production later this year. Within a month of its unveiling it had received nearly 400,000 pre-orders.
Its biggest accomplishment, however, has been its dogged and largely successful defense of free enterprise. Tesla has gotten as far as it has by doing what Detroit never did: challenging blatantly anti-competitive laws that states passed decades ago to protect auto dealers.
When it started its battle, Tesla was in such a weak position that it was reduced to opening “galleries” instead of sales centers in many states. At these galleries customers could look at a Model S, touch it and sit in it — but not test drive or buy it.
Over the next five years the company would fight a tenacious, state-by-state battle to get exceptions, exemptions and waivers allowing it to do business. Now it is going for all the marbles. A federal suit it filed in Michigan last fall challenges the constitutionally of state laws that mandate a role for middlemen in car sales. A win for Tesla could end many of the games dealers play with state legislatures. It might even spread beyond cars to other industries known for monetizing their political sway.
At a market capitalization of more than $50 billion, Tesla (with 0.3% of the domestic auto market this year) might well be overvalued, as some stock analysts have suggested. Or perhaps GM (17.1% of the market) and Ford (15.2%) are undervalued.
In any event, the main point is that Tesla has overcome substantial technological and political obstacles to get as far as it has. At a time when too many companies routinely abuse their customers, cook their books or use politicians to shield them from competition, it's enough to drive home renewed faith in capitalism.