I was making a similar point earlier. In fact I wouldn't be surprised if over time we start seeing more laws passed to encourage more of the money citizens of states spend to stay in-state. I think this is going to become a serious concern over time, how are local economies going to thrive if we keep buying stuff online and all the major online companies are somewhere in SV?
And if you, as a legislator, think bringing money and jobs into your state doesn't matter, you have another thing coming:
https://www.google.com/search?q=%22attract+business+to+the+s...
You'll find endless concern from every state about how to attract businesses and jobs to their state. It's not a coincidence that Hyundai opens a manufacturing plant in Alabama instead of someplace cheaper or more recognizable.
http://www.enquirer.com/editions/2002/04/06/fin_alabama_put_...
The problem with New Jersey doing this vs. Alabama is that the mechanism for Alabama to get Hyundai is pretty direct and pretty clear. Offer incentives to Hyundai, get a plant and a couple hundred jobs (plus the indirect halo effect on the economy outside of the plant).
For New Jersey it just looks like they're protecting shady car dealers by generating an artificial monopoly. The optics on it are terrible, it looks corrupt and petty, and the public rationale "it helps the consumer" is clearly false, but the practice is pretty much the same.
There's absolutely nothing that prevents Tesla from setting up a franchised dealer network in New Jersey, selling their cars cheap to the dealers and then having the dealers keep a cut while generating jobs in the state. It's "spreading the wealth around" from CA to NJ a bit. The only thing that prevents Tesla from doing this is that Tesla wants to maximize the profit share they see from the car sales.
The thing is, because Tesla has been very public about it, they know there is room in that large 25% profit margin per vehicle (Honda makes about 15% per hybrid) to "share a little".
While true, it's also universally true of just about everything. Yes, using resellers/dealers/etc. means that you have to give them a slice of "your" money. It also frees you from having the scale up the infrastructure and employees yourself. Which is why franchise models (either pure or blended) are so popular.
I suspect the more pressing motivation is that Musk wants to have complete freedom to do things his way without filtering by a middleman who would likely be strongly influenced by the way that auto dealers have historically operated.
That said, a couple of points.
1. As another poster noted, the auto dealer "experience" that many of us are familiar with doesn't necessarily reflect the experience one gets with a luxury car brand. Haggling over a Ford Fusion and walking into a $INSERT_LUXURY_BRAND dealership aren't the same thing.
2. I suspect a lot of folks are underestimating the degree to which Tesla will have to provide local services that look a lot like a dealership as it scales up and certainly as it introduces cars at more mainstream price points. For example, you need service centers--as they are building out today.
Ding ding ding. In this respect, the HN hive-mind is pretty schizo. Are you a phone company and trying to protect your profits? Burn them at the stake!
Are you a popular technologist who builds rocket ships on the side and are trying to protect your profits? Cheer him on!
> I suspect a lot of folks are underestimating the degree to which Tesla will have to provide local services that look a lot like a dealership as it scales up and certainly as it introduces cars at more mainstream price points. For example, you need service centers--as they are building out today.
That's also true. I'm not sure what the ratio of service center employees per Tesla vs. traditional automobiles. My guess is that you'll have to bring your Tesla back to the dealer for most maintenance needs, while I can bring my regular old family sedan to whatever gas station/service center is down the street.
We don't even know what the used car ecosystem for Tesla's will look like. Will anybody really want to buy a car they have to put a few grand of new batteries into? Will there be a used car service center ecosystem in place? When can I walk into the local Pepboys and buy a new sprocket or cog set for my Tesla? Never? Then bye bye Pepboys.
The network effects which contribute to the overall size of the auto industry, which is far more than just the manufacturers, is a pretty significant part of the overall economy in a given area. What will this ecosystem look like in 25 years with hyper sophisticated self-driving Tesla-likes all over the road? My guess is that it will be devastating to the system that's there even if an all new ecosystem replaces it. It's not a 1-to-1 map. People won't make the transition and that's a problem governments care about.
In the Tesla model, you eliminate all those for a "test drive experience genius" or whatever they call it, 3 or 4 to a "test drive experience center", NJ gets the sales tax on the car, and whatever they can squeeze out of the 3 or 4 guys who work at the Tesla dealership and the 2 mechanics who work in back.
If Tesla, an extremely minor player in the industry right now, gets to do this, why doesn't everybody else? Overnight all those endless seas of car dealerships, representing millions upon millions of dollars NJ wants to capture into it's state economy go bankrupt and now nearly all of the money is going to CA, Japan and Detroit with a handful of in-state jobs to man the direct-to-consumer "test drive centers". And now for the out-of-work accountant or phone engineer? He used to have a chance to at least work a commission only car salesman job for a few months till he found better work. Now he has nothing to go to in the interim and overall state unemployment ticks up a half percentage point.
As an engineer I see lots of built-in inefficiency in all this. So I understand the HN outrage. But NJ doesn't want efficiency, they want people in jobs and off welfare. Each person in a job is a chance for the State to capture a few hundred dollars off of each car sold -- not as taxes, but as GDP (which will eventually float the government's coffers as taxes anyways), rather than paying out for social welfare programs. It's in the interest of good governance to have an inefficient system, so that there's lots of places citizens in the state can reach into the car-to-consumer pipeline and extract some money from it. And they can do all this without having to put in place unpopular social welfare programs or increase taxes or some other public works program because they can regulate the private market to force it to be more inefficient than it should be.
From a macro perspective, NJ's behavior here is completely rational. I don't agree with it personally, I think there's better ways to do this. But it's easy to explain without resorting to name calling or disparaging thinking about the competency of NJ's governing officials.
To be clear, I'm not supporting the move. EVs are the future and the sooner we embrace them the better. Just trying to see it in the light of the argument made above.
Other than the dealer keeping the profit all of those jobs and people would be in NJ if there was a Telsa dealership in NJ. Now there won't be and those jobs won't exist.
Tesla's "dealer" lives in CA. GM's "dealer" lives in MI and Italy. Honda's "dealer" lives in Japan. Hyundai's "dealer" lives in South Korea. BMW's "dealer" lives in Germany. Mercedes' "dealer" lives in Germany. Toyota's "dealer" lives in Japan. Ford's "dealer" lives in MI. Suburu's "dealer" lives in Japan.
and on and on and on: Alfa Romeo, Aston Martin, Audi, VW, Cadillac, Fiat, Jaguar, Kia, Nissan, Porsche etc.
I don't know how many dealerships are in New Jersey, but let's say there's 1,000. You give Tesla the ability to sell direct to consumer, then everybody else will want to do the same. Franchise dealerships don't get their contracts renewed and every car maker moves to direct to consumer. Congratulations State Legislator jonknee, you've just cost New Jersey a minimum of 1,000 very lucrative jobs.
To give you an idea of how important 1,000 jobs are to a state economy, when Alabama was fighting for Hyundai to come open up a plant for 2,000 workers, with an average salary of just $40,000, Alabama offered around $253 million in incentives or over $115,000 per job. This is because of all the economic activity having just 1,000 employees running around with cash in their pockets would create and the network effects therein. Over 5 or 10 years, Alabama is set to make up that investment in spades.
I don't know how much your average car dealership owner makes, but I bet it's quite a bit over $40,000. I bet a 1,000 out of work bankrupt dealership owners is a pretty big slice of state economic pie. Over 5 or 10 years, I'd hazard they represent way more than $253 million in activity to New Jersey.
So congratulations, you've just cost New Jersey hundreds of millions of dollars in GDP and economic activity just by counting only the dealership owners and not all the rest.
Now you and I both know that when you go to 47 in Vineland, and there's mile after mile of car dealerships. They don't just have 1 or 2 sales guys. Each of those places employs a dozen to two dozen sales guys. A dealership can do that because they don't pay these guys almost anything except commission, so they can afford to keep a bunch of them around, grooming their power ties. So let's say there's an average of 12 sales guys for New Jersey's 1,000 dealerships or 12,000 people employed just selling the cars.
Well a Tesla style dealership doesn't want high pressure commission only power tie wearing salesmen. They want "car information experts". So they hire say 4 guys to mill around and direct potential customers to the interactive information kiosks. Let's say NJ is able to get all 4 of these guys from the pool of current car sales guys. What happens to the other 8?
So we have about 8,000 guys out of work. Congratulations. Let's use Alabama's model, you've just cost New Jersey a few billion dollars in economic losses. And now all those food trucks and restaurants and tie shops have to figure out how to get by with 1/3rd the number of customers. So that's even more people out of work and more economic losses.
How much economic damage are you willing to cause New Jersey, legislator jonknee, just so consumers don't have to haggle a bit when they buy a car every 7 years on average?
That can be said to be true about everything. Why allow online software sales, or Amazon purchases? Force them to have local BNM shops.
In your example, states are actively trying to collect at least sales tax. New Jersey is no exception
http://www.northjersey.com/news/sales-tax-decision-could-be-...
"Merely corroborative detail, intended to give artistic verisimilitude to an otherwise bald and unconvincing narrative.."
Look at the economics of a Tesla dealership, for every car sold in New Jersey, how much of that money stays in New Jersey? And let's be honest, being a car salesman is not the most lucrative or respectable of trades. The jobs are usually temporary so down on their luck folks can try and earn some money while looking for something else. Ensuring a state has dealerships possibly out of work people can fall into for temporary jobs is like having a social welfare program without having it on the books.
It sucks, but if you were a legislator in NJ, would you rather Tesla's profit went all out of state to Tesla, or if your citizens could get a crack at some of it and have it circulate around in the local economy for a bit.
It's unpopular, and us tech folks don't like it, but from a NJ legislator's position it's pretty rational.
The correct answer of course is to foster a local auto industry and get a company to make and build and sell cars from out of NJ elsewhere. But that's too impossibly forward looking.