House panel exempts Tesla from state ban on direct auto sales

Indiana lawmakers advanced a compromise bill Thursday morning that would prohibit direct sales from auto manufacturers to consumers—but the measure now includes language that would exempt electric car maker Tesla Inc. from the rule following an outpouring of support for the company.

The House Roads and Transportation Committee voted 12-1 on the bill, which started as an all-out ban on direct sales by any automaker that sold at least 1,000 units each year. It will now advance to the full Indiana House.

State Rep. Ed Soliday, R-Valparaiso, said he believed the bill would make people on both sides of the bill “equally happy and equally unhappy,” including Tesla fans and auto dealerships that view the company as competition.

Grandfathered into the direct sales ban is any manufacturer of autos that registered with the state prior to July 2015 and opens at least one physical location that is a warranty repair service center before Jan. 1, 2018. Tesla fits that description.

“This makes certain that we are only allowing this kind of sales with people who have demonstrated consumer service and accountability,” Soliday said.

Tesla sells its high-end electric cars directly to consumers, cutting out conventional third-party auto dealerships. That gives them a competitive advantage over traditional auto makers who are forbidden by state law from competing with their own licensed franchise dealerships, proponents of the initial bill said.

Tesla had previously said, if enacted, the bill would shut it out from the Indiana's market by 2019 and "limit its growth in the state."

Soliday said he wasn't trying to single out Tesla and has "never questioned the quality of Tesla's product."

Rather, he said he's trying to get ahead of future changes in the market, such as overseas manufacturers trying to sell directly to consumers online.

"We keep hearing Tesla, Tesla, Tesla," Soliday said. "Other markets in the world are prepared to enter the American market."

The revised bill would prohibit direct sales from Tesla if the company were sold to another manufacturer.

During two hours of testimony Wednesday, the initial bill was mostly opposed by Tesla fans and cheered on by car dealerships. Soliday eventually called a recess and said he would figure out a compromise, which he introduced Thursday morning.

Most auto manufacturers have relationships with dealerships, which sell to customers, effectively creating a three-tiered marketplace. But the dealership model isn't in Tesla's model.

The amended bill met approval from the Automobile Dealers Association of Indiana.

“This issue has always been about protecting the people of Indiana along with the nearly 50,000 jobs our state’s auto dealers support," ADAI President Marty Murphy said Thursday in a written statement. " This legislation does just that. The loophole will be closed to all new market entrants going forward, which was always our goal.”

Diarmuid O'Connell, vice president of business development at Tesla Motors, said the company "did not adopt a direct model … as a means of eviscerating or avoiding the dealer system." Rather, Tesla thought a direct model would provide customers the best service and educate consumers on its technology.

Soliday said he was offended at suggestions that the bill was an attempt to quash innovation in the state.

Similar bills that critics have said would quash Tesla have been unsuccessfully put forward in the Indiana General Assembly in previous years, including in 2016.

The controversy around the bill is heightened this year because Tesla plans to introduce a "mass-market" vehicle this year, which would be priced around $35,000 per year. Its current models range from about $75,000 to $135,000.