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Tesla CEO Fights for New Electric-Car Sales Model

Wednesday, 5 Jun 2013 | 9:59 AM ET
Tesla Loses Battle to Sell Directly in Texas
The CEO of the electric car company is considering seeking legal action on a national level, reports CNBC's Phil LeBeau, in order to get the right to make direct sales in \states around the country.

Elon Musk, the chief executive of electric carmaker Tesla Motors, criticized the traditional way of selling cars in the United States and indicated the model would hamper the 10-year-old U.S. automaker's growth prospects.

Tesla is pushing to sell its Model S electric sedan directly to consumers rather than relying on a network of independent dealers. These efforts have met stiff resistance from dealer groups around the country.

"The auto dealers association is definitely creating some problems for us, making it harder to get things done," Musk said during Tesla's annual meeting on Tuesday.

The annual meeting comes after a string of positive news in the last month for Tesla, including its first-ever quarterly profit and a near-perfect score for the Model S from the influential Consumer Reports magazine.

(Read More: Tesla Stock Could Hit $109, Analyst Says)

As a result, Tesla shares have nearly tripled this year. On Tuesday, Musk said the company's gross margins could approach those of sports-car maker Porsche AG "over time."

Tesla is now beefing up its sales operations in anticipation of growing Model S sales. The company expects to have 50 stores by the end of the year, up from 34 during the first quarter.

Musk has said that traditional dealers may not be the best advocate for electric cars because they rely largely on gas-powered vehicles for revenue. Musk said Tuesday that consumers were broadly supportive of direct-to-consumer sales.

Elon Musk, CEO of Space Exploration Technologies Corp (SpaceX)
Getty Images
Elon Musk, CEO of Space Exploration Technologies Corp (SpaceX)

He told shareholders that the traditional dealer model has not worked for other auto start-ups, including Fisker Automotive andCoda Holdings, which filed for bankruptcy last month.

"It didn't work for Fisker, didn't work for Coda. In the last 90 years, when did it work?" Musk said at the meeting in Mountain View, California that was also broadcast online. "We have to do this directly."

David Hyatt, vice president of public affairs for the National Automobile Dealers Association, disputed Musk's comments, saying the troubles facing Fisker and Coda did not stem from their sales models.

(Read More: New Chargers Will Be Blackout-Proof, Says Tesla's Musk)

"Industry experts say Fisker failed because it rushed its product to market before engineering problems were resolved," Hyatt said in a statement. "Coda did not receive government loans and was under-capitalized.

"Thank goodness there are independent dealers left to try to help the customer," he added. "Manufacturers and brands may come and go, but the dealers are there for the long term."

Most U.S. states do not allow manufacturers to sell new cars directly to consumers. A pair of bills that would have allowed such sales in Texas failed to make it to a floor vote in the state legislature before its regular session ended on May 27.

(Read More: Tesla To Triple Supercharger Network: LA to NY)

"Honestly, it was a hard bill to pass anyway and I knew that when I filed it," said Democratic Representative Eddie Rodriguez, who proposed the bill in the House. A companion bill was introduced in the Senate by Republican Senator Craig Estes.

"It was very different than what the current system is. I knew it was going to be a challenge," Rodriguez said, adding "the dealers are a pretty strong lobby group."

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