The news that Fiat-Chrysler is the latest auto-maker caught having massively—and probably illegally—exceeded allowable emission levels for its diesels cars raises a major question: Will this crisis shake Chrysler CEO Sergio Marchionne's long standing bet against history, in particular against the replacement of the internal combustion engine by the electric drive train?
Taking public transportation already makes a big difference in reducing your carbon footprint. Now, the San Francisco Bay Area's rapid transit system is reducing its own carbon footprint by committing to 100 percent renewable energy.
California's clean air agency finalized the state's strict emissions standards for vehicles Friday, potentially foreshadowing a conflict with Washington following President Trump's promise to the auto industry last week to roll back emissions rules nationally.
By Dave Cooke
U.S. Environmental Protection Agency (EPA) Administrator Scott Pruitt rescinded the determination that the EPA standards for 2022-2025 are appropriate. This decision was made at the request of automakers seeking to supplant more than four years of robust, technical analysis with a political request from industry.
A spokesperson for the administration even noted on a press call regarding the announcement that automaker complaints had been taken at face value with no additional analysis or verification, despite the tremendous body of evidence the EPA has already put forth supporting the determination. This decision could have major implications not just for our climate, but for consumers, thanks to an administration willing to bend over backwards for industry.
What Does This Mean?
This step backwards is the first necessary for the administration to weaken the fuel economy and global warming emissions standards set for 2022-2025 way back in 2012. These standards were reaffirmed by the previous EPA Administrator Gina McCarthy in January based on the breadth of data, which showed that manufacturers could continue to meet the standards on the books and that moving forward with such standards would provide tremendous benefits to the American public. While a stroke of a pen might undo this determination, it cannot undo the significant body of evidence underpinning this well-justified determination.
It's Industry's Word vs. a Mountain of Independent, Peer-Reviewed Data
As I wrote in January, the determination that EPA's 2022-2025 standards were appropriate was based upon a mountain of evidence. The agency spent tens of millions of dollars on research and analysis, including vehicle testing and simulation that resulted in at least 20 peer-reviewed publications; studies on consumer acceptance of technology and willingness to pay for it which contradicts automaker assertions that the public doesn't want fuel-efficient vehicles; and updated assessments of technology costs by an outside consultant that looked at how a given technology would impact the parts and engineering costs of other parts of the car, including some of the innovative technologies that weren't originally anticipated back in 2012.
In addition to this massive amount of work accounted for by the EPA, the Department of Transportation (DOT) added its own heap of analysis, including independent assessments of the costs to achieve the standards and the ability for future combustion engine and vehicle technologies to meet the 2025 standards as well as a DOT-funded comprehensive assessment by the National Academies of Science, Engineering and Medicine. DOT's findings were published jointly with EPA in the Draft Technical Assessment Report last summer and said quite clearly that manufacturers could meet the finalized 2025 standards through the deployment of conventional technologies and at a lower cost than originally anticipated.
A further part of the process, of course, came from publicly submitted analyses. Groups like the International Council on Clean Transportation, the Environmental Defense Fund and of course the Union of Concerned Scientists augmented the agencies' research with independent analysis which generally showed that the agencies' own estimates of technology improvements were consistently conservative. In fact, automakers could exceed standards set out to 2025 through the deployment of improved conventional gasoline-powered vehicles.
Additional independent research showed how fuel economy standards disproportionately benefit lower income individuals, who tend to purchase cars on the secondary market and for whom fuel costs are a much larger share of income, underscoring the critical importance of these standards in protecting these families from fuel price volatility while saving them up to two percent of their annual income since fuel economy standards first went into effect. Consumer groups as well have pointed to the positive impacts these standards have on all Americans, with thousands of dollars in net savings over the lifetimes of these vehicles that begin the moment the typical new car buyer drives off the lot, putting much needed income back in the hands of consumers.
Industry Continues to Cry "Wolf"
Standing in opposition to this large body of evidence is the voice of industry, claiming absurd assertions about jobs and cherry-picking data because even studies they paid for don't support their ridiculous claims. A recent automaker-funded study even noted that in spite of their own conservative assumptions, these rules are, in fact, job creators. Of course, this industry fighting progress is nothing new—automakers have tried stunts like this previously. Automakers have claimed amongst other things that reducing tailpipe pollution under the Clean Air Act "could prevent continued production of automobiles" and "do irreparable damage to the American economy;" they have also fought safety features like seat belts and air bags for decades while waging what the Supreme Court called "the regulatory equivalent of war" claiming among other things that such features would lead to decreases in sales.
[Spoiler alert: None of that happened and now you can breathe a lot easier and have a much safer automobile because regulators didn't kowtow to industry demands].
On top of this, they are also claiming that the EPA "rushed to judgment" in its determination, forgetting apparently the four-plus years of analysis and the numerous detailed, daylong technical meetings held by the EPA both with individual automakers and their trade associations, in addition to pages upon pages of industry-submitted analysis which the EPA carefully considered and to which the agency responded to before finalizing its determination. Contrary to their claims, the automakers aren't upset about the process—they're upset about the outcome. And now they're looking to bend the ear of an administration generally opposed to regulation to, once again, fight regulations that result in tremendous public good.
By Itself This Signature Does Little, but It Portends Bad Intentions
Rescinding the final determination at the request of the auto industry flies in the face of good, technically sound policymaking; however, it is not in and of itself a binding change in policy. At least for now, the 2022-2025 standards limiting global warming emissions from passenger vehicles remain on the books. Unfortunately, this action signals a strong likelihood that this administration will not follow the evidence but will simply cave to industry demands—after all, it took less than a month for Pruitt to overrule a decision, built on four-plus years of data, just because the auto industry asked.
Any change in these regulations will require a formal rule-making process—and we at the Union of Concerned Scientists will fight like hell to make sure any such rule continues to build upon the strong, technical foundation that led to the regulations on the books today.
By Marlene Cimons
Some day you may discover tomato peels and eggshells where the rubber meets the road.
The environment—not to mention your tires—will be better for it.
Researchers at Ohio State University have discovered that food waste, specifically tomato peels and eggshells, makes excellent filler for rubber tires, with tests showing they exceed industrial standards for performance. Filler is combined with rubber to make the rubber composite used in tires. Food waste could partially replace carbon black, the petroleum-based filler long used in tire manufacturing, which has become increasingly hard to come by.
This approach to manufacturing more environmentally-friendly materials complements ongoing efforts to develop sources of clean fuel. Using tomato peels and egg shells as tire filler could help reduce the nation's dependence on foreign oil, keep food waste out of landfills and make the production of rubber items—especially tires—more sustainable, according to Katrina Cornish, who holds an endowed chair in biomaterials at Ohio State University.
"If we hit a real shortfall in carbon black, we'll have to use something else," Cornish said. "You could use some nice eggshells. Many companies would like to have a green position and this is a good way to do that."
Food accounts for around one-fifth of the waste sent to landfills, according to the U.S. Environmental Protection Agency. Finding ways to keep food waste out of landfills not only saves space, but also helps in the fight against climate change. Bacteria turn food and yard trimmings found in landfills into methane, a potent greenhouse gas.
When properly processed, food waste can be used to generate energy, enrich the soil as a fertilizer or serve as a food source for animals. Now, it also could prove valuable in tire manufacturing.
Cornish has long been interested in developing new sources of rubber, as well as ways to enhance rubber products. So, when she came to Ohio State in 2010, she looked to food waste as a potential tire filler.
"I wrote to every food processor in the state and said: 'if you've got waste, we'd like to look at it,'" she said. "We received 35 different types of waste: batter drippings, sauerkraut juice, milk dust powder, among them—and eggshells and tomato peels. I'd always wanted to look at tomato peels because I spent a lot of time in California and would see all those produce trucks loaded with tomatoes and knew they had to have thick, tough skins so the ones on top didn't squash the ones on the bottom."
Initially, Cornish had doubts as to how well eggshells would work. Eggshells are composed largely of calcium carbonate, which is used as an extender, rather than a reinforcer. The latter is more useful as tire filler. But Cornish discovered to her delight that her doubts were misplaced. Eggshells have a porous architecture that provides a larger surface area for contact with the rubber and proved to be reinforcing.
"We were very excited," she said. "It added considerably more value than expected." They also found that tomato peels are very stable at high temperatures and can generate material that performs well.
"Fillers generally make rubber stronger, but they also make it less flexible," said Cindy Barrera, a postdoctoral researcher in Cornish's lab. "We found that replacing carbon black with ground eggshells and tomato peels caused synergistic effects, for instance, enabling strong rubber to retain flexibility."
It also turned the rubber reddish brown—depending on the amount of eggshell or tomato in it—rather than the black appearance that results from using carbon black. About 30 percent of a typical automobile tire is made of carbon black, the cost of which varies with petroleum prices. American companies most often purchase carbon black from foreign sources, according to Cornish.
"The tire industry is growing very quickly and we don't just need more natural rubber. We need more filler too," Cornish said. "The number of tires being produced worldwide is going up all the time, so countries are using all the carbon black they can make. There's no longer a surplus…"
Particles of tomato peels and eggshells used by to make rubber composite. Katrina Cornish
The U.S. produces around 80 billion eggs annually, according to the United Egg Producers. Cornish said that commercial food factories crack open half of them, then pay to send the remains to a landfill, where the mineral-loaded shells do not break down. "Nothing much happens to them in a landfill, since there are no calcium-eating animals," she said. "They are mostly rock."
The U.S. grows around 15 million tons of the ever-popular tomato, according to the Department of Agriculture. Most of that is canned or in processed products. When food companies make tomato sauce, for example, they peel and discard the skin, which is difficult to digest, she said.
Cornish is concerned about deforestation that results from planting new rubber trees and she has been researching rubber alternatives, including the rubber dandelion. While they are unmistakably dandelions, they are not the same as what many homeowners regard as annoying lawn and garden intruders.
Cornish explained that their leaves are thicker and bluer and the flowers are smaller. Most importantly, its taproot yields a milky fluid with natural rubber particles in it.
The rubber dandelion can be used to make tires. Biobased World
"The rubber dandelion comes from northwest China, Kazakhstan and Uzbekistan, but it can grow in snowy areas of Ohio," she said. "But it is not very sturdy, so we are trying to make it stronger and higher yielding." If successful, "it could grow as an annual crop and it could create many processing jobs," she added.
Meanwhile, Ohio State has licensed Cornish's technology for turning food waste into tire filler to her company, EnergyEne, for further development. Cornish stresses, however, that no one will start collecting "the eggshells from your breakfast," she said. "Kitchen waste is not going to go this way. So keep on with your compost piles. In fact, maybe you can use them to grow rubber dandelions."
Reposted with permission from our media associate Nexus Media.
By Ben Jervey
As federal support for electric vehicles (EVs) is expected to wither under the Trump administration, state-level policies will play the biggest political role in how quickly battery powered motors replace the internal combustion engine.
Yet, at this critical moment when state governments should be supporting zero-emission vehicles, many states are cutting their incentives, while others are penalizing EV drivers outright.
In a recent article for the New York Times, Hiroko Tabuchi explores a number of efforts underway in state capitals across the country that are making the transition to electric cars a steeper uphill climb.
These speed bumps take two main forms:
1. The canceling of tax credits that support EV sales and leases.
2. New registration fees that disproportionately penalize battery-powered vehicles.
These legislative attacks on EVs bear the fingerprints of Big Oil, which sees the electrification of the transportation sector as the biggest single threat to the oil industry. Groups funded by the likes of ExxonMobil and the Koch brothers are supporting the measures and in some cases, even writing the bills.
State Financial Support for EV Sales Slacking
Over the past decade, nearly half of all of the states and the District of Columbia have had some kind of financial incentive for EV sales on the books—typically in the form of an income tax credit or a straight-up rebate. But this support is fading, as some states cancel the incentives and others let them expire.
Today, only 16 states (plus the District of Columbia) still offer tax credits or rebates and at least two states are voting in the current legislative session on whether or not to extend or repeal the benefits.
In Utah, a bill that would have extended the state's EV tax credit (of up to $1,500) through 2021 was just voted down, failing by a single vote. Meanwhile, in Colorado, which had offered the country's most generous EV incentive, legislators will soon vote on a bill that would cancel the $6,000 tax credit for purchasers of EVs.
As Tabuchi noted:
"The measure in Colorado has been backed publicly by Americans for Prosperity, an advocacy group founded by the conservative billionaire brothers David H. and Charles G. Koch, whose wealth is founded on their petrochemicals empire."
The rollback of sales incentives has come at the same time as many states are introducing new fees that directly penalize plug-in owners for their choice to drive zero emission vehicles that charge off the local electric grid.
Registration Fees for EVs
Coming into the 2017 state legislative sessions, 10 states impose extra fees to register electric vehicles.
This year, policymakers in nine states have introduced legislation that would charge a higher rate for EV registrations than for conventional internal combustion vehicles. (Another state, Illinois, is debating a bill that would raise the EV registration rate, which is currently lower, to match gas-powered vehicles).
Kansas and Indiana are both debating a $150 annual fee. Montana started out with a bill featuring a $300 annual fee, but that was negotiated down to $95 per year, which passed their house and has moved into the state senate. New Hampshire, South Carolina, Minnesota, Arizona and even California have some sort of EV fee winding through the legislature.
Proponents of higher EVs fees say that they are necessary to ensure that plug-in cars pay their fair share for the roads. Typically and universally within the U.S., highway funds are raised from revenue from gasoline taxes. Because EV drivers don't buy gas, they aren't chipping in for those highway funds.
However, the Sierra Club's Electric Vehicles Initiative director, Gina Coplon-Newfield, told DeSmog that this argument fails the tests of basic math, saying, "When you look at the financial numbers, they don't add up at all."
First of all, Coplon-Newfield noted, "conventional vehicles have become far more efficient" and aren't consuming as much gasoline and therefore aren't generating as much revenue for the highway funds. Second, "gas tax charges have not been in sync with inflation."
Coplon-Newfield gives the example of North Carolina, where the state is hoping to raise millions for their highway fund. If you raised the gas tax by one cent per gallon, the state would raise an extra $7.5 million. Contrast that with the total revenue raised from EV registration fees in 2014: $440,000. Even if the state is registering three times as many EVs today, it's still millions short of the goal.
There are other reasons that EVs should be given a break on registration fees—they actually cause less road damage given their light weight and improve air quality and benefit public health because they don't have tailpipes.
Georgia: A Cautionary Tale
For a look at what happens when a state both kills incentives and starts charging EV drivers extra fees, you only have to look to Georgia.
Just three years ago, Georgia was an unlikely national leader in electric vehicle sales, boosted by one of the nation's most generous state-level EV tax incentives that offered drivers a tax credit of up to $5,000 when buying a plug-in vehicle. By early 2014, Georgia trailed only California in EV registrations. Then, in January 2015, a new measure slipped into the state's $1 billion transportation bill which killed the credit and added another $200 annual fee for EV drivers.
Electric car sales immediately fell off a cliff.
Overall EV sales dropped by 90 percent and sales of the Nissan LEAF are off nearly 95 percent, according to Don Francis, the coordinator of Clean Cities-Georgia and executive director of the Partnership for Clean Transportation.
"In January 2015, state Representative Chuck Martin, an Alpharetta Republican, introduced a bill to kill the state credit partly on the argument that it gave electric vehicles an unfair advantage over other low-emission cars such as the Chevrolet Volt. Martin's measure got lumped into the $1 billion transportation bill, which raised the state's gas tax to pay for road improvements. As if that weren't enough, lawmakers slapped electric vehicle owners with an additional $200 annual fee on the logic that it wasn't fair to make drivers of gas-powered vehicles bear the entire cost of road maintenance. When the new laws went into effect on July 1, the emerging electric vehicle market was immediately eviscerated. Statewide registrations plummeted from 1,338 in June to 115 in October."
But there's more to the story. Martin's bill looks similar to model bills that have been pushed by the American Legislative Exchange Council (ALEC), a Koch-funded entity that pushes fossil fuel–friendly agendas through state legislatures.
As the Center for Media and Democracy has noted, ALEC recently began pushing the Koch's anti-EV agenda:
"At the American Legislative Exchange Council (ALEC) meeting in Scottsdale, Arizona in December 2015, the Energy, Environment and Agriculture Task Force heard a presentation on 'State and Federal Subsidies for Electric Vehicles,' then voted on a resolution to discourage states from providing subsidies, the 'Resolution Regarding Subsidies for Electric Vehicles.' The Kochs have long funded ALEC. Koch Industries has had a seat on ALEC's 'Private Enterprise' board for years, while Koch network entities like Freedom Partners, Americans for Prosperity and Koch-funded 'think tanks' have seats on a number of task forces where they get a vote on bills."
Meanwhile, also in 2015, Georgia started charging EV drivers extra registration fees. The extra $200 per year to register the vehicle probably doesn't have the impact of losing the $5,000 tax credit. But it sure doesn't help.
As evidenced in the registration numbers pictured in the chart above, Georgia is no longer a national leader in electric car sales. In Georgia and nationwide, the transition to electric cars seems inevitable. It just might take a decade or two longer if left to market forces alone. In terms of public health and the climate, those years shouldn't be wasted.
As Coplon-Newfield put it, "Now is the time to be incentivizing, not penalizing, electric vehicles."
Reposted with permission from our media associate DeSmogBlog.
The oil industry and its "deep state" allies in the Trump administration have lured U.S. auto companies into a potentially fatal political trap, chumming Detroit by tapping into the deeply embedded penchant of the Big Three for chasing short-term market trends at the expense of long term value.
Excited by the arrival of a Big Oil ally, Scott Pruitt, to head the U.S. Environmental Protection Agency (EPA), the auto industry asked the Trump administration to undo the recent Obama Administration rule locking long term, reliable standards for emissions and fuel economy. The industry argued that the standards, which it agreed to back in 2009 as part of the auto bail-out, were now too onerous because consumers were shifting to buy SUV's again with lower oil prices. The argument is utterly bogus. The 2009 rules set separate, if ambitious, standards for each size class of vehicle, so while more SUV sales do drive up average emissions and oil consumption, they do not require the companies to make a single vehicle to a higher standard than they agreed to.
What's really at stake here is the pace of vehicle electrification. Meeting the 2009 standards for each vehicle class was always dependent on a significant portion of those vehicles being zero-emission electric drive. That's an existential threat to the oil industry—and in many ways to Detroit's dealers, who make most of their money repairing the drive trains of internal combustion cars. Electric drive vehicles (EV) have a fraction of the maintenance costs of gas or diesel.
But a rapid deployment of electric drive cars is vital to the long term global viability of automobile manufacturers. Whatever happens in the U.S., global auto markets are going electric and the Big Three need a major U.S. EV market to compete in the 21st century.
A few days before the Trump administration announced that—surprise, surprise—it was giving the auto industry everything it had asked for and more, not only waiving the post 2022 economy standards but also seeking to strip California of its historic right to set its own vehicle emissions rules, I attended a high level strategy session in New Delhi devoted to the future of India's auto fleet. If Detroit had been listening it might have realized the folly of resuming its servile junior partner status with oil.
The message could not have been clearer. Minister after Minister—roads, industry, rail, urban development—proclaimed India's urgent need for "transportation without oil." The government of India's top planners made clear that they were uniformly committed to an all electric vehicle economy by 2030, a step which would dry up the oil industry's biggest remaining growth target. It would also shut off the world's fastest growing automotive market to U.S. manufacturers if they continue to rely on internal combustion engines.
India's domestic ride-hailing service, Ola, announced a partnership with Indian auto maker Mahindra to test electric taxis. The government indicated it would suspend the permit process for electric vehicles, as the City of Beijing has already done, giving electric car ownership a big boost. Toyota boasted that 46 percent of the Camry's sold in India are already hybrids or electrics. The electric drive train has already left the station. With China already far down the electric vehicle pathway, Europe being forced onto it by air pollution problems and India trying to leap-frog both, an auto industry that continues to rely on 20th century technology will rapidly become a 20th century relic.
Why would U.S. auto companies, like General Motors with its big—and bold—bet on the ground-breaking electric Bolt, give up the level playing field and predictability which the 2022 emission and economy rules had given them in 2009? Just as Trump was signaling that he will ease the requirements, Rob Threlkeld, global manager of renewable energy for General Motors, said the automaker is pushing to source all of its power from clean sources by 2050 because that's what consumers want. Why would manufacturers choose a strategic pathway so clearly at odds with where world auto markets are going?
Why would they pick such a big fight with their biggest domestic market. California, joined as it is by a bevy of other states seeking cleaner and cheaper transportation options? Well, dealership pressure is one reason. Dealers hate EV's, because they don't break down and don't fatten their service departments. Another is that the auto industry's lobbying apparatus thrives on the message, "the government is out to hurt you. Fight back!" (After all, if Government Affairs departments concede the reality that government regulations have been, net, good for the industry, keeping it competitive with the German and Japanese manufacturers, what's the argument for fat lobbying budgets?)
From 2004 to 2008, as oil prices soared, Detroit clung to its SUV dependent business model, pronouncing that gasoline prices could never reach the $2.50 mark at which customers starting seeking fuel economy. When that marker was crossed in 2006, Chrysler and GM headed for bankruptcy, Ford for massive debt and value loss and the U.S. industry almost went away except for the Obama administration rescue.
Now, just as happened in that era, the auto industry is once again barreling towards long-term bankruptcy for short-term relaxation of standards. What can rescue Detroit from its own death wish?
Primarily California and its allied states, (Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island and Vermont), which have adopted their own version of the 2022 fuel efficiency rules and an electric vehicle mandate to go with it. Representing 30 percent of the U.S. auto market, these states alone can drive Detroit to remain competitive in the electric drive segment. While the Trump administration appears ready to deny California the waiver which enables it to maintain its own rules, there will be a major legal battle in the courts over whether the federal government can revoke a waiver once it has been issued. And even if, in the short turn, the Trump administration prevails, California and its allies can make clear that once political attitudes in Washington change, as they always do, that the next round of economy and emissions standards will be much, much tougher than those Detroit is seeking to weaken today. The 2022 rules were very much a compromise—and with foreign manufacturers racing to electrify, California holds a much stronger long term hand than Detroit.
So what the auto companies and auto workers and auto communities, all ought to be praying for is that the Trump administration's ploy to reinforce Detroit's dependence on oil fails—because the courts uphold state's rights and California's ability to insist that the auto industry remain globally competitive.
By Daniel Gatti
The state of Connecticut is a progressive state, with a strong track record of support for laws and policies that will reduce global warming emissions and a goal of putting more than 150,000 electric vehicles (EV) on the road by 2025.
Given the policy commitments of the state of Connecticut, one might assume that Connecticut would be a place that would welcome an innovative, important business like Tesla, the largest manufacturer of electric vehicles in the U.S. And given the significant fiscal challenges that Connecticut faces, one might think that Connecticut would be excited to see Tesla operate new stores within the state, bringing jobs and tax revenue.
But in fact, Tesla is legally prohibited from operating its Tesla stores in Connecticut.
Under Connecticut's dealer franchise law and under the law of many states throughout the country, automobiles may only be purchased through independent car dealerships. Tesla's cars are sold directly from the manufacturer, which mean that Tesla stores are not welcome in Connecticut.
The problems that Tesla has faced with automotive dealers and state dealer franchise laws represent a combination of unintended consequences, special interest influence and the challenges of developing new technologies in marketplaces dominated by entrenched interests and outdated laws. The Tesla wars are also a part of a broader story of how changes in technology are impacting laws and regulations governing transportation in the U.S.
Why Do We Have Dealer Franchise Laws?
The car dealership model as we know it today arose in the 1920s and 1930s, as first General Motors and then eventually all of the "Big Three" American automakers chose to license the rights to sell their cars to independent dealers, rather than selling the cars directly to consumers.
The independent dealership model worked because it allowed both parties to focus on core competencies: The manufacturers could focus on making the best cars possible, while independent dealers made the inroads into local communities that allowed them to most efficiently sell the cars directly to consumers.
From the beginning, one challenge in the independent dealership model is the obvious power imbalance between the "Big Three" automakers who dominated automobile manufacturing and the thousands of independent dealerships that were licensed to sell their vehicles. Stories abounded of auto manufacturers exploiting their superior market position to gain unfair advantages on independent dealers. For example, manufacturers could force independent dealers to purchase cars that they didn't want as a condition of maintaining their relationship or terminate the franchise relationship at will without cause or coerce profitable dealerships into selling their business at below-market rates.
Beginning in the 1930s and accelerating greatly in the 1950s, legislatures in all 50 states passed a series of laws, known collectively as dealer franchise laws, which were intended to protect independent dealers from abusive practices at the hands of vehicle manufacturers. Among other things, these laws prohibited the "Big Three" from owning licensed dealerships themselves or selling cars directly to consumers.
The prohibition on direct manufacturer sales was intended to protect independent auto dealers from unfair competition from their own manufacturers. The classic concern addressed by the ban on direct sales from manufacturers is the independent car dealer who spends money, time and effort building a market for, say, Ford vehicles in a certain town, only to have Ford Motor company jump in and open up a rival direct from manufacturer store that undercuts the independent dealer on price and takes his market share.
By the 1950s when most of these laws were passed, the independent dealer model was so entrenched in the American car market that it was simply presumed that all auto manufacturers would have independent dealerships selling their cars and that any direct manufacturer sales would necessarily be in competition with an independent dealership. Dealer franchise laws therefore did not contemplate the challenge posed by a company like Tesla, a company that refuses to sell its cars to independent dealerships at all and instead insists that all sales must be direct from the manufacturer itself.
Why Doesn't Tesla Distribute Through Franchised Dealers?
Tesla has adopted this policy because they believe that the traditional independent dealership model does not work for electric vehicles.
According to Tesla CEO Elon Musk:
"Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business and selling the new technology of electric cars. It is impossible for them to explain the advantages of going electric without simultaneously undermining their traditional business. This would leave the electric car without a fair opportunity to make its case to an unfamiliar public."
Tesla points to the failure of Fisker and Coda as examples of electric vehicle start-up companies that failed because of their reliance on independent dealerships to sell a new technology. In addition, Tesla argues that because electric vehicles have lower maintenance costs than traditional cars, independent dealerships that make money off of service will always have an incentive to steer consumers away from electric vehicles. Tesla offers service for all of their vehicles for free.
Recent studies confirm that, with a few exceptions, most auto dealers in the Northeast are not making enough of an effort to sell electric vehicles. Between January and June of 2016, dealers in the Bridgeport to New York City metro area had 90 percent fewer EVs listed for sale than Oakland, when adjusted for relative car ownership. A recent report by the Sierra Club found that Tesla stores provide EV customers with far superior service, as Tesla was more likely to have EVs available to test drive, more likely to be knowledgeable about state and local incentives and more likely to be able to correctly answer technical questions about charging EVs, than traditional car dealerships.
A Tesla store looks and feels more like an Apple store than a car dealership. They are placed in high volume, high traffic areas such as shopping malls. They have almost no inventory, as Tesla cars must be ordered individually from the manufacturer rather than sold on site. There is no haggling over price. And Tesla stores sell only Tesla products, including cars and batteries; with the recent merger with SolarCity, Tesla stores will soon sell solar panels as well.
Why Do Some States Allow Tesla Stores and Others Do Not?
Over the past few years, courts and legislatures across the country have struggled with the question of whether and how to apply dealer franchise laws to Tesla stores. Some state courts, including Massachusetts and New York, have found that dealer franchise laws are only intended to apply to manufacturers that have licensed independent dealers and do not provide a cause of action against Tesla stores. Other states, including New Hampshire and Maryland, have recently changed its law to permit Tesla stores through legislation.
States that currently ban Tesla stores include Texas, West Virginia, Utah and Arizona, in addition to Connecticut. Some states, including Virginia and Indiana, allow a limited number of Tesla stores. New Jersey proposed a regulation that would have banned Tesla stores in 2015, but then relented last year, amending the regulation to allow four stores in New Jersey.
Often the difference between a jurisdiction that permits Tesla stores and a jurisdiction that bans Tesla stores comes down to minute differences in statutory language. For example, until 2014 Michigan's dealer franchise law prohibited auto manufacturers from "[selling] any new motor vehicle directly to a retail customer other than through its franchised dealer."
The word "its" in the statute arguably suggests that the law only applies to manufacturers that have franchised dealers and thus does not prohibit Tesla stores. But then a legislator allied to the auto industry slipped a provision into an unrelated piece of legislation removing the word "its" from the statute and just like that, Tesla stores were banned in Michigan.
Beyond narrow questions of statutory interpretation, judges and legislators wrestling with these questions need to consider the purpose of dealer franchise laws. Are these laws meant to regulate a relationship that arose within the context of the independent dealer system? Or are these laws intended to mandate that the independent dealer system must be the only way automobiles are sold in the U.S. forever? If it is the latter, then the dealer franchise laws represent not only a ban on Tesla, but a ban on all innovation in distribution methods.
Can such a ban be justified?