On Oct. 21, Gov. Rick Snyder signed House Bill 5606 into law after it was nearly unanimously approved in both the state House and Senate. The bill, popularly labeled the anti-Tesla bill, strengthens an already existing Michigan law that prohibits manufacturers from selling cars directly to consumers. While this legislation is intended to keep the playing field even, it falls short in practice. Michigan should work together with businesses such as Tesla and other automakers to spur innovation and grow the state’s economy.
Tesla, a luxury electric automaker started in Silicon Valley, California, relies heavily on a direct-to-consumer sales model for its products. Many critics see the bill as shutting innovation out of Michigan, while defenders laud its defense of Michigan jobs. However, the state must realize it can welcome innovation without breaking the current auto sales structure.
General Motors — a Detroit-based automobile manufacturer that currently takes part in direct-to-consumer sales abroad — publicly came out in support of the bill, likely trying to avoid giving Tesla a competitive advantage in Michigan. Fear that Tesla would dominate the electric vehicle market and out-compete Michigan automakers while opening the floodgates of direct-to-consumer car sales contributed to the bill’s unanimous support in the state Senate and nearly unanimous vote of 106 to 1 in the state House. If Tesla could use direct-to-consumer sales, then GM and other automakers would want that same right. Such a system could put the middle man at risk, resulting in lost jobs at dealerships across the state.
Though the problems presented are considerable, there’s no evidence that legalizing direct-to-consumer sales will lead to consumers flocking to Tesla or similar businesses. California, which allows such sales, hasn’t seen a domain-changing shift. In 2013, an article in Business Insider stated that the pure electric cars claimed just more than 1 percent of market share. Likewise, other industries have similar sales models but still rely on middle men for purchasing advice. E-Trade started in online stock brokering, which presented a new world of direct control for the investor, but Americans still desire face-to-face interaction and expert advice. Many still use financial advisors and brokers. They now just have more choices.
It seems unlikely that Tesla will be able to compete directly with the Ford Fusions or Chevrolet Silverados. It also seems unlikely direct-to-consumer sales will immediately change how cars are bought by the average consumer in Michigan. As with investing, consumers make their own independent choices based on different values and desires. If they really want an electric luxury car that can get you from New York to California, they can buy a Tesla because they’re currently the only automaker working in that niche. There are hundreds of different preferences people have in cars, and it isn’t unreasonable to trust consumers to make the right choice for purchasing method and product.
The state should be promoting economic pressure for innovation and more environmentally friendly options. It is improbable that Tesla will competitively overwhelm GM, Ford, and other Michigan incumbent automakers in the current market. And in the long run, additional competitors in the automotive marketplace will generate competitive innovation, benefitting the state’s economy and residents, and Michigan legislature and Gov. Snyder should welcome this.