MOUNT KISCO, N.Y. — On a stretch of highway not a half-hour from Fairfield County, just off the Saw Mill River Parkway, luxury auto dealerships fall in line, one after the other: BMW, Volvo, Lexus — and Tesla, the relatively new kid on an expensive block.
At least a half dozen of Tesla's electric-motor sedans, which range in price from $71,000 to $140,000, populate the modest parking lot, waiting to be sold or picked up by new owners. Some are plugged into charging stations the size of a vacuum cleaner.
Richard Pell of Rye, N.Y., is there, too, on this February weekday, to get acquainted with his new Model S P85D, a sleek, gray car with chrome door handles that retract so they are flush with the body. He first saw a Tesla at a retail showroom inside a mall in White Plains, N.Y.
It's not something he could have done in Connecticut, less than 10 miles away.
Tesla can't sell directly to consumers in Connecticut the way it can in New York and many other states. In Connecticut, it's against the law.
Most states adopted franchise laws in the 20th century for various types of commerce, including car sales, to protect local franchisees from unfair competition by the companies whose products they sell. Each state's law is unique. In Connecticut, Ford, Honda and any other carmaker can sell automobiles only through locally owned dealers who have franchise agreements with those brands.
In recent years, Tesla has fought and won court battles for the right to sell directly to consumers in New York and Massachusetts. Now, Tesla is trying to come into Connecticut. But it's not proving easy.
Auto dealers and other opponents say Tesla would open the door for other carmakers to sell directly, undermining a system of locally owned dealerships that employ thousands in Connecticut, give to local charities and are committed to, and entrenched in, the communities where they do business. Car dealers also wonder about the future of Tesla, and whether people who buy its cars might be left without a warranty, or a way to fix them, if the company went out of business.
Tesla and its supporters say the company offers a new retail experience without the haggling — removing the mystery behind a car's ultimate sales price. The company includes years of repair service in the initial price of the car, running afoul of the car-dealership business model, which relies on revenue from service stations.
Also, Tesla tailors its customer service to help people understand its unique cars. Dealerships that sell a wide variety of brands, mostly gas-powered, would have little incentive to take the time necessary to sell something as unusual as a Tesla, said James Chen, vice president of regulatory affairs for Tesla.
But on this February morning, at the Tesla store where Pell is looking over his new car and getting oriented to its mechanics, the place looks like any other dealership. But he first saw the car somewhere you wouldn't expect to shop for one: next to Nordstrom at The Westchester mall in White Plains.
"My daughter and I were having a cup of coffee while my wife exchanged something at the department store, and she goes, 'Dad, check it out, there's a Tesla over there,'" said Pell, who is co-founder of a capital management firm in New York City. "So, we get in, and I felt like I was getting into a spaceship. It was an immediately game-changing experience."
Pell went for a test drive and decided right then to replace his 2006 Mercedes. Tesla manufactured a Model S to his specifications at its factory in Fremont, Calif., and shipped the car to Mount Kisco, N.Y., where Pell picked it up.
Jamie Silverstein of West Hartford can appreciate the experience. She's one of 500 or so Tesla owners in the Connecticut. Silverstein ordered her Tesla online and had it delivered to a Tesla service station in Milford, as some Connecticut customers do. Others buy the car at a Tesla store like the one in Mount Kisco, or another inside the Natick Mall in Natick, Mass.
Silverstein said she not only loves the car for its performance and design, she wholeheartedly supports the company's environmental mission and its retail strategy.
The retail experience is straightforward because Tesla has a set price for its vehicles and upgrades, Silverstein said. There's no haggling.
"The experience with Tesla is fresh. It is brilliant," she said. "You know that you are paying the same price as the guy who came before you and the guy who came after you."
Running Legal Roadblocks
Two bills before the state legislature could allow Tesla to sell cars in Connecticut.
State law now requires anyone selling cars to have a new-car-dealer license, or a used-car-dealer license, issued by the state. It prohibits licensed car manufacturers from getting a dealer's license.
House Bill 6682, introduced by the legislature's transportation committee, would allow a manufacturer to sell cars directly to customers — but only the cars it makes, and only if it doesn't already have a franchise agreement with a locally owned dealer.
Tesla officials say the bill would prohibit manufacturers of well-known brands — such as Ford, Chevrolet, Volvo, BMW or Mercedes — from selling directly to consumers in the state, which would undercut existing franchises.
The Connecticut Automotive Retailers Association says carmakers could get around existing franchise agreements by creating subsidiaries that would sell directly to car buyers. For example, Saturn was a subsidiary of General Motors that had a separate retail network, said James Fleming, president of the automotive retailers association.
Senate Bill 198, introduced by Sen. Art Linares, R-Westbrook, would "facilitate the sale of electric vehicles in Connecticut." The exact language of the bill hasn't been fleshed out, which isn't uncommon for bills that evolve during a legislative session.
In Massachusetts, Tesla simply opened for business without going through the legislature and then fended off a legal battle brought by the Massachusetts State Automobile Dealers Association.
The car dealers said Tesla violated state law prohibiting a manufacturer from owning a dealership. The Supreme Judicial Court of Massachusetts dismissed the claim, saying the law was intended to prevent a car manufacturer from opening a dealership that would compete unfairly with a franchise that sells the same cars. Tesla doesn't have a franchise relationship with any dealers in the state. So the dealers lacked standing in the lawsuit, the court ruled. Tesla continues to sell cars at the Natick Mall.
In 2012, the Greater New York Automobile Dealers Association and other petitioners sued the New York Department of Motor Vehicles for giving Tesla licenses to sell cars in White Plains and Garden City. A New York Supreme Court judge struck down the lawsuit in 2013, saying the auto dealers didn't have standing because they had no franchise agreements with Tesla. The judge also rejected an argument that other car dealers would suffer "special damage" from Tesla.
"The only potential injury suggested in the record is an increase in business competition which, considered alone, is insufficient to confer standing," Judge Raymond J. Elliott, III, wrote in his opinion.
Connecticut's law is more strict and prohibits a manufacture from getting a license to sell cars. So Tesla is seeking a legislative change.
Tesla has navigated varied state laws by opening "galleries" in some states and stores in others. It has one or the other type of retail venue in 35 states.
At a Tesla gallery, employees demonstrate what the car can do and how it works. They can't discuss price. When the conversation turns to purchasing or price, consumers are directed to an in-store touch-screen computer to order online from Tesla's factory in Fremont, Calif. The car is then made to the customer's specifications and shipped to the nearest Tesla service station for pickup.
At a showroom, or store, Tesla sells cars, though those are also made to specifications at the factory and delivered at a later date.
The company has stores in New York state and Massachusetts. It has galleries in New Jersey and Maryland.
Connecticut loses tax revenue when people buy cars out of state. When a resident registers a car in Connecticut, the state Department of Motor Vehicles asks for evidence that sales tax was paid on the car. If the buyer paid sales tax in another state that was equal to Connecticut's rate — 6.35 percent, or 7 percent for cars worth $50,000 or more — then the DMV doesn't collect an additional tax.
If the out-of-state dealership collected sales tax at a lower rate, Connecticut collects the difference between that state's rate and Connecticut's rate. If no sales tax was paid, Connecticut's DMV collects the full sales tax at 7 percent for luxury vehicles worth $50,000 or more. The state also has some exceptions to this rule, such as a lower rate for people in the military.
Starting At $71K
Consumer Reports magazine named Tesla's Model S the best overall new car for 2015, calling it a "technological tour de force." When the car debuted, it was named the 2013 Motor Trend Car of the Year.
Tesla Motors was founded in 2003 by a group of engineers who set out to build an electric car that would be more powerful than a gas-powered automobile. The company takes its name from Nikola Tesla, the Serbian-American inventor who patented the AC induction motor in 1888.
Tesla co-founder and CEO Elon Musk has a personal net worth of $9.9 billion, according to Bloomberg news service, a result of his success as an entrepreneur and co-founder of several companies, including PayPal and SpaceX.
Musk has said Tesla's master plan is to expedite an economic shift from fossil fuels to sustainable energy. The company has invested billions of dollars in a massive factory in Nevada to produce batteries that could be used for cars, or homes that produce solar power and need to store unused energy.
In 2008, Tesla started selling a limited number of its first vehicle, a luxury sports car called the Roadster. In 2012, it came out with its high-end sedan, the Model S. The car sells for $71,000 to $140,000, depending on software upgrades and other amenities.
The company has one Connecticut service station, in Milford, and five super-charging stations that can provide up to 170 miles of range in as little as 30 minutes, though the charge rate depends on weather, demands on the utility grid, and other factors.
Tesla sold about 22,000 Model S sedans in 2013 and about 33,000 in 2014. This year, the company hopes to sell 50,000. Tesla is also coming out with its Model X sport-utility vehicle later this year and a more affordable Model 3 sedan in 2017, with an expected starting price of $35,000.
The type of Tesla that Pell bought in Mount Kisco, the Model S P85D, has dual motors that deliver 691 horsepower to the wheels. It can go from 0 to 60 mph in 3.2 seconds.
Pell recalled the time he test drove a Tesla in December.
"I felt like I was taking the Concorde down the runway at Heathrow Airport in London, or something," Pell said. "I mean, the acceleration is immediate and constant. This wasn't even the model I bought. I'm a little scared of that baby."
And If It Goes Under?
Connecticut auto dealers point to the Tesla CEO's own admission in January that the company could take years to build out its manufacturing capacity in order to keep up with demand, and that it might not be profitable until 2020.
Auto dealers like Jeff Aiosa, president of Carriage House Mercedes-Benz of New London, wonder what happens if Tesla goes out of business. How will the customers get their vehicles serviced? Will they be left with a very expensive machine that is so anomalous it can't be fixed by most independent mechanics, or only at a steep price?
Aiosa also isn't convinced that electric cars will appeal to the masses even when Tesla starts selling a car that starts at $35,000. When gasoline was nearly $5 per gallon a few years ago, people were buying fuel-efficient vehicles. This year, with gas prices less than $3, sport-utility vehicles are back.
"That's just the market," Aiosa said. "People have short memories."
Financial analysts who cover the company offer wildly different views. James Albertine of Stifel, Nicolaus & Co. is optimistic, saying the company's stock price will reach a target of $400. John Lovallo of Bank of America Merrill Lynch puts the stock's target price at $65, according to the publication Business Insider.
Among the cautious analysts, Ryan Brinkman of JPMorgan Chase & Co. wrote last month in a research note that Tesla has had production issues and delivery delays. Perhaps more threatening though, is that other luxury automakers have noticed Tesla's mystique and responded with their own designs, Brinkman wrote.
If Tesla went out of business, it wouldn't be the first luxury auto maker to do so.
Saab Automobile went bankrupt in December 2011 and ended production after 61 years in business. Anyone who had a Saab with a warranty was left wondering if it would be honored after the car marker folded. This, car dealers say, is why it's important to have a locally owned business run by people who are invested in the community.
Robert Hensley of Simsbury bought a 2010 Saab 9-5 brand new from Mitchell Saab on Hopmeadow Street in Simsbury. Hensley owns and operates a small financial services firm in Avon that bears his name, and he said he tries very hard to do business with locally owned companies, such as the Mitchell Auto Group. Mitchell sells Volvos, Dodge, Ford, Volkswagen, Subaru, Land Rovers and other brands.
Hensley's Saab occasionally died because of a recurring electrical problem. He had to give up on it, but the car was not likely to be worth much as a trade-in because Saab was no longer in business. The Mitchell Auto Group gave him a very favorable trade-in, Hensley said.
Mark Mitchell, a third-generation principal of Mitchell Auto Group, said his dealership lost $9,000 on the Hensley trade-in. The dealership continues to serve and honor warranties.
"Through the process, if we protect those consumers, they certainly consider us with their next purchase," he said.
Mitchell said his Auto Group employs about 300 people in sales, service and other functions at seven different dealerships in Canton, Simsbury, Torrington and Windsor. As many other dealers do, his company donates to local charities and provides scholarships to employees.
Mitchell said the retail model Tesla is proposing creates a loophole in public policy through which other car makers could bypass locally owned dealers. Once that happens, profits from car sales will go back to a company's headquarters out of state rather than circulating in the region.
Bradley Hoffman is a third-generation member of his family business and co-chairman of Hoffman Auto Group, which employs more than 500 people at 10 dealerships. Hoffman said if a manufacturer is allowed to sell directly to consumers, that will eliminate competition among dealers who have franchise agreements with the same manufacturer.
"The dealers right now are knowingly losing money to sell new cars with the hopes that they can make it up in their service and parts department, and body shops, if they have them," Hoffman said. "That's the reality of the world."
Why should Connecticut legislators change the law this year when Tesla is still a fairly young company with an uncertain financial future, the car dealers say. If Tesla succeeds, and Musk has admitted that he will need to succumb to the franchise arrangement at some point, then there's no need to change the law, they say.
Said Fleming, president of the auto dealers' association: "What's the rush?"