Electric car giant Tesla at center of growing automaker-versus-dealer fight

Tesla faces hurdles as states move to ban the... 03:16

Lawmakers in New York State are set to vote on a controversy that's growing nationwide. At issue: whether automakers have to go through dealers to sell their vehicles. Electric car giant Tesla is right in the middle of the fight.

Tesla has a handful of small stores in 21 states and the District of Columbia, typically in malls, where you can see their cars in person. A buyer can discuss price with a salesperson or go to the Tesla website, pick out whatever combination of features he or she likes, and order it online. But some states are now invoking or adapting existing laws to stop Tesla in its tracks, and it all comes down to money.

Tesla not only builds expensive, high-performance electric cars like no one ever has before -- they want to break the mold on how cars are sold. That has met resistance from the $676 billion automobile dealer industry.

It is illegal to sell cars directly to buyers in Texas and Arizona, restricted in Maryland and Virginia, and last week, New Jersey's Motor Vehicle Commission voted to ban direct sales to customers.

Jim Appleton, president of The New Jersey Coalition of Automotive Retailers, said, "What this is really about is consumer protection, and Tesla is working overtime to try to undermine the legitimate public purpose behind this statue, which is to protect the public interest and to ensure that the fox is not placed in charge of the chicken coop."

Tesla founder and chief executive officer Elon Musk fired back on the company website. He wrote, "The rationale given ... is that it ensures 'consumer protection.' Unless they are referring to the mafia version of protection, this is obviously untrue."

Tesla CEO Elon Musk talks about the future of... 01:42
Dealers contribute about 20 percent of state sales taxes. Many states have laws requiring automakers sell through franchises, but Tesla has managed to circumvent those.

Travis Okulski, deputy editor of the automotive website Jalopnik, said, "Once the manufacturers take control, you are getting the real price, and I think that a lot of people of afraid of losing their livelihoods over it. ... Losing commissions, losing service contracts."

The New Jersey law also requires on-site service departments -- something Musk has long criticized. Musk said on June 4, 2013, "Unfortunately the way the auto association is set up, is that they make most of their profit on service."

He says his cars don't need service departments because they have far fewer moving parts in need of regular maintenance.

"This isn't about the car," Appleton said. "Tesla has chosen an unwise and in New Jersey unlawful distribution model. It's unwise because it doesn't advance the public interest in price competition or in public and highway safety."

But is it the distribution model of the future? Okulski says it is. "Right now, Tesla only makes a $70,000 car, but next year at the Detroit Auto Show, there is going to be an entry-level Tesla around $35,000 to $40,000," he said.

In states like Texas and New Jersey, Don Dahler reported, customers can go to a small store called a gallery to look at the cars, but no one there is allowed to answer your questions and you cannot buy one. Tesla is looking at fighting this in the courts.