Luxury electric car company Tesla Motors didn’t pick San Antonio for its $5 billion battery factory in 2014, and now, less than one year later, the Texas Legislature is rejecting Tesla’s bid to establish direct sales stores in Texas. No one’s saying the two events are directly related, but what’s clear is that Texan lawmakers believe the state will be just fine without Tesla Founder and CEO Elon Musk in business here.
The Tesla rejection is a setback for the state’s tech sector. Tech leaders want to see Texas’ pro-business officeholders embrace innovators who disrupt markets with products and services consumers clearly welcome and want in the marketplace. San Antonio’s tech leaders see the City’s loss of Uber and Lyft as a setback for the city and its image, and several local entrepreneurs and tech leaders say they see the state’s rejection of Tesla stores as another misguided effort that ignores free market realities.
House Bill 1653 and Senate Bill 639, which would have allowed Tesla to set up direct sales stores at 12 different locations in Texas, including San Antonio, died last week. Texas law requires all new motor vehicles to be sold through franchised dealerships. Despite spending hundreds of thousands of dollars on a phalanx of 22 lobbyists, Musk hit a wall, vastly outspent and outworked by the Texas Automobile Dealership Association that successfully defended the status quo. The Texas Tribune reported last week that neither bill even made it to a committee vote, leading Tesla’s representatives to “concede they are doomed.”
The outcome is a big disappointment to those who admire Musk and love the all-electric luxury Teslas they drive, praising the vehicle’s high performance, reliability, and breakthrough technology. At a starting price of $75,000, the Tesla is way beyond the reach of most mortals, but it’s become the high performance luxury vehicle of choice for a select niche of successful entrepreneurs, high net worth tech innovators and others.
Even without Texas stores, Tesla buyers don’t need to leave home, much less the state, to get their hands on a new vehicle. It takes only minutes to purchase a Tesla if you have enough room on your credit card. No wheeling, no dealing. Just click here and start shopping. The Rivard Report went virtual shopping for this story.
We ordered the Model S P85D Performance sedan with various upgrades: the 85Kw battery, the red multi-coast paint job, grey “next generation leather seats, carbon fiber interior decor, 21? grey turbine wheels, and the black Alcantara headliner.” Cost $117,500, plus an additional $1,200 for the paperwork and delivery fee. We stopped just short of clicking on the red “Order” button. For pretenders, there is a lease option. Put $7,184 down at the time of signing a 36-month contract and the Tesla is yours for $1,519 a month as long as you keep it under 15,000 miles a year.
Pat Condon, co-founder of San Antonio tech giant Rackspace, expressed disappointment with the Legislature’s failure to approve Tesla operations in Texas. One of the first Tesla buyers in San Antonio, Condon owns the 58th production model of the Signature Series Tesla Model S, which he pre-ordered two years before its 2012 release. As for the vehicle’s performance, Condon has nothing but praise.
“It exceeded all my expectations,” he said. “The power, the instant performance — it blows everything else out of the water.” Condon described the smooth, rotor-powered acceleration as “breathtaking.”
“Legislature blockage like this prevents new and potentially innovative distribution models,” Condon said. “Tesla’s sales model might prove better for consumers in the long run. Why not give it a chance?”
Condon likens Tesla to Dell, who practiced a similar direct to consumer model at a time when buying a computer at a retail store was the norm. Today, a staggering amount of tech is sold online.
“It seems that manufacturers are using this antiquated law as a crutch,” Condon said. “They don’t want to compete.”
Gurvinder Pal “GP” Singh, founder of Karta Technologies and resident San Antonio entrepreneur and philanthropist, agrees.
“I can’t say I like the idea of clinging to the dealership requirement,” he said.
He recalls purchasing his own Tesla Model P85 online.
“It was very simple,” Singh said. “I hope the law does eventually change. Consumers in Texas should have access to that experience.”
Singh purchased his first Tesla Model S in 2013, and later was rear-ended by a semi-trailer on a San Antonio expressway. The Tesla was a total loss, but neither Singh not his passengers suffered injuries. He simply ordered a replacement vehicle. Singh is obviously drawn to the vehicle’s high safety rating, but the now-retired electrical engineer readily acknowledges the pleasure of the driving experience.
“It’s the best car ever,” Singh said, noting that he is pre-ordering the soon-to-be-released Tesla SUV for his wife.
The Tesla owners community in San Antonio is smaller than in other major Texas cities, but the state’s most devoted Tesla owner might be Greg Papay, a partner and architect at Lake/Flato here. Papay owns two Teslas, including one he located on eBay that is one of the original 27 vehicles produced by Tesla for the company’s 27 founders.
“Mine is car #14, which belonged to J.B. Straubel, Tesla’s chief technology officer and the real genius behind the batteries. He gave it to his father in Wisconsin, who decided to sell it,” Papay said. “His father called me out of the blue at one point and we chatted. He told me Tesla #13 belongs to Sergey Brin, the founder of Google and one of Tesla’s original investors. I haven’t been able to find out who owns #15.”
Papay, who holds coveted Fellow status in the American Institute of Architects, delivered a speech at the annual AIA convention in Atlanta last week titled, “The Intersection of Design and Performance: The Tesla Motors Lesson.”
“I used both the company as a business model for architectural firms and the product model for architecture. We had 400 or 500 people in the room,” he said. “The Tesla is a truly beautiful car, the perfect fusion of engineering and aesthetics. The two are inseparable.”
Papay posed with one of his Teslas in front of the Alamo last year for a photo shoot that CPS Energy conducted at the time San Antonio was assembling its bid package for the Tesla factory. For awhile, he kept up his own Tesla blog, and he is regular reader of the popular Tesla Motors Club blog as the best place to stay current. One now-dated blog posting cited a coming Tesla showroom and service center in Stone Oak, but for now the closest Super Charger Station, where a Tesla driver can get a 200-mile charge in 30 minutes, is in San Marcos. The closest showroom and service center is in Austin.
— CPS Energy (@cpsenergy) March 26, 2014
What’s the difference between a direct-sales dealership and a showroom?
“If you go to one of the Tesla showrooms, they can’t talk to you about price and they can’t let you test drive a vehicle,” Papay said. “They are really Tesla education centers.”
San Antonio was one of the cities hoping to win the competition for Tesla’s much- heralded, $5 billion “Gigafactory.” Musk has said the factory will produce 500,000 lithium-ion batteries annually and employ 6,500 people by 2020. The factory, which Tesla elected to build in Reno, Nevada near the company’s Fremont, California vehicle assembly plant, is expected to be the vanguard for Tesla’s production of a more-affordable, mass-market model.
Tesla announced on May 1 that the new factory will play an additional role as the production site for the Tesla Powerwall, a rechargeable lithium-ion battery designed for use in the home. Mounted on the wall and hooked into the local grid, the Powerwall, analysts say, lies at the forefront of the coming energy storage revolution.
Here’s how it works: the Powerwall allows the storage of energy, which, in our electric age, isn’t exactly a new concept. But when you apply it to the energy that runs your house, the effect becomes bigger. At the residential level, it saves the consumer money since peak electricity costs more, while low-demand energy costs less. Powerwall will let you acquire less expensive electricity, store it, and then use it during peak hours rather than the utility’s more expensive electricity.
Effects also extend into the wider grid. Being able to collect your energy during one part of the day, store it, and then use it during another, would eliminate the weaknesses of renewable but inconsistent energy sources like solar and wind. Homeowners could grab the sun while it’s shining, and then use it to light up their living rooms at night. As a result, the grid as a whole becomes less reliant on fossil fuels.
Already, adoption of the Powerwall battery seems encouraging. During a recent earnings call, Musk reported that Tesla had received 38,000 reservations its first week, along with 2,500 reservations of the industrial version of the battery, the Powerpack. Bloomberg Business used those numbers to stipulate that the suite of batteries has earned the company $800 million.
While Singh reported that he didn’t feel stranded or isolated as a Tesla owner in Texas, his predictions about the new Powerwall emphasizes San Antonio’s loss after being passed over as the location for Tesla’s “Gigafactory.”
“I have over 15 years experience working with fossil fuels and the plants that produce them,” he said. “Tesla’s battery is a big, big deal.”
Tesla isn’t the only company in the energy storage game, but with legislators rejecting the company’s sales and distribution model, it’s unlikely Musk will fare much better in the 2017 session of the Texas Legislature. Consumers who want a Tesla, especially when the more affordable model is introduced soon, will have to go online to shop.
“I am hugely disappointed with the way this has ended up,” Papay said. “I have no doubt we will be the last state in the country to change, but it will happen eventually because of the social pressure that will build to allow consumer to purchase vehicles directly from manufacturers. I’m not saying dealers should be outlawed, but they need to make the case for their value if they want to continue to exist. We sold our last gas vehicle one year ago, and we’ll never buy a gasoline car again.
Tesla Model S #35 belongs to Jim Bodenstedt, president and CEO of Muy! Companies, which operates Wendy’s, Taco Bell and Pizza Hut restaurants in more than 500 locations in 15 states, employing more than 15,000 people. Bodenstedt and his wife, DeAnna, have made major gifts to UTSA and various San Antonio charities and non-profits. The Bodenstedts own multiple Teslas.
“The whole idea is anti-free enterprise” Bodenstedt said. “Why can’t we buy a car directly from the manufacturer? We can’t buy liquor without going through a middle man, either. We can buy everything else directly from the manufacturer.”
*Featured/top image: A Tesla using a Powerwall battery. Photo courtesy of Tesla Motors.