This past week, Texas Governor Rick Perry came out in favor of changing Texas’ so-called “antiquated” laws prohibiting automobile manufacturers from selling directly to consumers. [i] In states across the country, these laws have come into recent controversy because they effectively prohibit Tesla Motors from selling their vehicles: for a variety of reasons, Tesla does not sell through an automotive dealer and instead sells their vehicles directly. This situation presents a classic question that has arisen throughout the history of the regulatory state. Should regulations adapt to new technology, or should new technology adapt to regulations?
For the developer of the new technology, the answer is of course the former. Tesla Motors CEO Elon Musk has discussed several barriers to Tesla being able to adjust its sales model to utilize dealerships. For example, Musk has noted that dealers would be incapable of adequately explaining Tesla’s technology to consumers. He has also argued that dealers selling both Tesla’s and gas powered vehicles would have a conflict of interest. The incentive for dealers would be to perpetuate reliance on gas-powered vehicles, since most of their fleet is comprised of those vehicles. Finally, Musk has stated that the failures of other electric vehicle manufacturers prove that the dealership sales model is impractical for emerging manufacturers. Because these regulatory barriers are practically insurmountable to Tesla, Musk argues that they should be removed.
Competitors to an emerging technology company counter that changing a regulation to adjust to a new technology in a way that hurts established companies is unfair. They have played by the regulatory rules and are now possibly being put at a competitive disadvantage for doing so. Government, and the public at large, may also oppose changing the regulations. Changing the regulations may be better for widespread proliferation of new technology, but may result in net loss of jobs or decreased tax revenue.
Regulators should weigh these factors in order to determine whether to adjust regulations to a new technology. In the case of Tesla Motors, there are compelling reasons to think that states should adjust their dealership regulations. In 2006 Tesla Motors introduced the Tesla Roadster, the first production battery electric vehicle to travel over 200 miles per charge. [ii] Seven years, 2,400 Roadsters, and 13,000 Model S Sedans later, business is booming for Tesla. Their stock is up over 400% this year alone. [iii] In 2014 the company expects to sell 30,000 of their 265 mile-per-charge Model S’s, [iv] and to start production on the Model X; [v] a 270 mile-per-charge crossover vehicle. Tesla is also developing a factory that will aim to produce 500,000 lithium-ion batteries a year by 2020, more than were produced worldwide in 2013. [vi] All of this shows that there are several significant benefits to the public of ensuring Tesla’s continued technological progress. Moreover, as Elon Musk has pointed out, the dealership requirement has proven to be an insurmountable barrier to entry for other electric vehicle manufacturers. Prohibitive barriers to entry created by regulations may stagnate industry progress by preserving the status quo.
[i] http://bizbeatblog.dallasnews.com/2014/03/gov-perry-its-time-for-state-to-revisit-antiquated-rules-that-prohibit-tesla-sales-in-texas.html/
[ii] GreenCar Magazine, “Tesla Motors Moving Quickly to Commercialization of an Electric Car” July 5, 2009. Available at http://archive.is/RMaTQ.