Tesla takes Massachusetts
At first glance, it’s easy to see where the dealers got the idea for their lawsuit. Current Massachusetts law prohibits car manufacturers from also operating dealerships in the state. Given that Tesla never bothered with the whole “dealership” business model, it would seem that Tesla’s “direct sales” would be illegal.
Or at least, that’s how you might think about it if you’re a rent-seeking group of middlemen trying to protect your business model against innovation. Fortunately, the Supreme Judicial Court wasn’t persuaded, pointing out that the law as written was clearly designed to prevent auto companies that already partnered with dealerships from competing abusively with their own dealers. Because Tesla never employed dealers in the first place, the law never applied to them. Transport Evolved quotes the unanimous decision:
Chapter 93B is aimed primarily at protecting motor vehicle dealers from injury caused by the unfair business practices of manufacturers and distributors with which they are associated, generally in a franchise relationship…We therefore affirm the judgment of the Superior Court dismissing the plaintiffs’ action on the basis of lack of standing.
This should be self-evident if you imagine pretty much any other good. Safeway could not sue to a child’s lemonade even if there were a hypothetical law that prevented juice manufacturers from selling their own products outside supermarkets. Just as the lemonade stand isn’t actually in competition with the supermarket, Tesla wasn’t in competition with the car dealers. So one has to wonder why the dealerships cared in the first place.
The most likely answer is that they cared because they feared that Tesla’s business model – one without dealerships – would actually work. And not just work, but make Tesla a higher profit margin than the very auto companies whose products these dealers bring to market. What this would mean in practice is that many other companies might decide to phase out dealerships altogether, cutting out the middlemen. When the value proposition you bring to the table is so weak that it requires laws to prevent cutting you out of the distribution chain, you have good reason to fear for your job.
However we might empathize with the dealers’ fear of their industry vanishing with time, it’s important to remember that vanishing industries do not represent harms for the government to correct. The French economist Frederic Bastiat outlined the absurdity of arguments like the dealers’ in a satirical letter from a candle-maker to the French government asking the government to blot out the sun because it was unfairly competing with his candles. Of course, the candle-maker’s misery notwithstanding, we all understand that candles are inferior to the sun and are presumably grateful that we don’t need artificial light 24 hours a day.
This is not to suggest that Tesla’s cars are as vastly superior to cars sold by traditional dealerships as the sun is to candles. So far, the jury’s out on Tesla, though the demand for them is apparently strong enough that they’re a viable product. What’s more, Tesla caters to a fairly upscale market, so it is unlikely to drive the Fords or Chevrolets out of business unless it starts producing dramatically cheaper cars.
But one thing is for certain: If Tesla’s cars do outclass their competitors in the same way that the sun outclasses candles, then the law should not be allowed to keep them from American buyers simply because of the persistent inefficiency of one particular special interest group. As Justice Louis Brandeis said, sunlight is the best disinfectant. If Tesla is the sun in Bastiat’s metaphor, it may be about to disinfect armies of inefficient candle-makers.