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New Jersey's ban on direct sales of Tesla’s electric cars attempts to stifle market evolutions

Published: Tuesday, March 18 2014 7:00 a.m. MDT

In this Oct. 27, 2010, file photo, the Tesla Model S electric sedan is shown during the unveiling of the new Tesla factory in Fremont, Calif.

Paul Sakuma, File, Associated Press

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This past week, the motor vehicle commission in New Jersey voted to prohibit carmakers from selling directly to the public, effectively keeping New Jersey residents from being able to purchase Tesla vehicles in that state. Of course, consumers can go to Tesla showrooms in other nearby states if desired. Tesla vehicles can also be purchased online directly from the company.

One of the offending showrooms was located in an upscale mall in Short Hills, N.J. In keeping with its tradition-disrupting electric vehicles, Tesla’s direct-to-the-consumer sales process does not necessitate a traditional auto showroom.

These actions curbing the sale of Tesla vehicles echo other attempts to stifle evolutions in market-based economies. One example from the past occurred from 1811 to 1817 in England. At that time, the introduction of power looms and spinning frames was replacing various lower-wage workers. A movement to smash and burn these devices was initially led by Ned Ludd, and those following his example came to be called Luddites. Fear of technological progress and an inability to adapt couldn’t halt market forces over time.

Motivation for prohibiting the direct sale of Tesla vehicles is attributed to several goals. One is the protection of consumers. Discussions around this issue include the concern that an impartial dealer is needed to act on behalf of consumers and to ensure sufficient information is available for them to make an informed decision about the acquisition of a new car.

Another concern is that Tesla’s business model introduces too much competition into the car-sales process. James Appleton, president of New Jersey’s auto dealer association, stated, “Tesla’s business model crushes the competition.”

New Jersey’s vote against Tesla’s successful process of selling its high-end vehicles will have a temporary effect on the company’s ability to sell its products in that marketplace. Four other states have enacted similar prohibitions on selling directly to the consumer, and other states are considering following suit.

Over time, protecting a less efficient, traditional method of selling cars to consumers will be modified. Consumers will vote with their buying preferences and will either validate Tesla’s model or take their purchases elsewhere. Market forces, rather than state motor vehicle commissions, should determine the success or failure of ground-breaking businesses.

Kirby Brown is the CEO of Beneficial Financial Group based in Salt Lake City.

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