As Tesla bills stall, Lege weighs loophole for Buffett

The latest effort by Tesla Inc. to sell the electric cars that it makes directly to Texas consumers appears to have stalled in the Legislature, even as a bid by Warren Buffett’s Berkshire Hathaway Inc. to win an exception to the strict regulations preventing automobile manufacturers from also owning dealerships is racing forward.

Senate Bill 2279 — filed Tuesday by state Sen. Kelly Hancock, R-North Richland Hills — would allow manufacturers to own dealerships “so long as the vehicles they sell or service are not the same type of motor vehicle that they manufacturer or distribute.” It has been scheduled for a Thursday Senate committee hearing.

Berkshire Hathaway Automotive, which has 85 dealerships in 10 states and is based in Irving, needs the exception to avoid violating existing Texas law because its parent company owns recreational-vehicle maker Forest River Inc., as well as a large stake in Chinese electric-car maker BYD Co.

Based in Omaha, Nebraska, Berkshire Hathaway is one of the world’s largest holding companies, with more than $220 billion in revenue in 2016, according to securities filings. Buffett is the company’s chairman and largest shareholder, as well as the second-wealthiest person in the world with a net worth of more than $75 billion, according to Forbes magazine.

Hancock’s bill was filed after Buffett visited Austin this week and met with Gov. Greg Abbott and Lt. Gov. Dan Patrick. A spokesperson for Buffett did not respond to a request for comment, nor did spokespersons for Abbott or Patrick. The Quorum Report first reported that Buffett met with Abbott and Patrick this week.

Meanwhile, two Tesla-backed bills — House Bill 4236 and Senate Bill 2093 — were filed nearly six weeks ago but have languished in committees without garnering hearings. Those companion bills would allow automobile manufactures to own dealerships in the state and use them to sell their own cars.

“As currently structured, (SB 2279) looks like a single carve-out for a specific corporate entity,” said Diarmuid O’Connell, Tesla’s vice president business development. “It’s rolling out the red carpet for one manufacturer and slamming the door on another.”

Tesla has lobbied Texas lawmakers unsuccessfully for permission to sell its high-end, technologically advanced cars directly to consumers since the 2013 legislative session. Texas is among only four states that prevent it from doing so, with Michigan, Connecticut and West Virginia the others.

The company currently operates what it calls “galleries” in Texas, rather than stores, to showcase Tesla technology to potential buyers, but its employees are barred from discussing price, taking orders or selling cars. In addition, once a Texas consumer buys a Tesla over the internet, the automobile must be delivered to a third-party location for pickup rather than to a Tesla gallery, O’Connell said.

“In communist China and socialist France, we can sell direct” to consumers, O’Connell said. “All we are asking for is a chance to offer our products to Texas consumers” without going through a third-party dealership.

Tesla has so far been stymied in Texas in part by opposition from the politically powerful Texas Automobile Dealers Association, which had a hand this week in helping Berkshire Hathaway get SB 2279 introduced. Berkshire Hathaway Automotive is a member of the dealers association.

Berkshire Hathaway Automotive “worked with us” on the wording of the bill, said Bill Wolters, president of the dealers association.

Wolters disputed the notion that the bill is a “carve-out” for a specific company because it would allow any manufacturer to own dealerships if they don’t use them to sell their own products.

“This doesn’t in any way damage the integrity of our current laws,” he said.

However, Tesla backers view the effort to help Buffett’s company differently.

State Rep. Jason Isaac, R-Dripping Springs, said it’s more evidence that the existing rules serve mainly to protect middlemen and should be changed. Isaac is a lead author of HB 4236, while state Sen. Bob Hall, R-Rockwall, is the author of SB 2093.

“If we didn’t have a problem with how our current system is set up, they wouldn’t need to change anything,” Isaac said. “We need a free-market solution that would allow manufacturers to sell directly to consumers if they want to.”

Isaac said he’s optimistic Texas eventually will eliminate its restrictions, saying the issue is likely to become even more pressing over the next few years as non-traditional companies enter the auto sector, such as Apple and Google, joining Tesla in developing cars — and possibly autonomous vehicles — and want to sell them directly to consumers.

Still, with only a few weeks left in the current legislative session and little movement on the Tesla-backed bills, Isaac said it’s increasingly unlikely Texas will lift its main restrictions on dealership ownership now.

“The auto dealers are up in arms,” Isaac said. “They do not like my legislation, and they will probably be successful in killing it.”

Tesla’s O’Connell said he agrees with Isaac that momentum is on Tesla’s side in the long term.

“Whether it happens in 2017 or in a future year, it is going to happen,” O’Connell said. “People understand it is basic free-market principles, and a monopoly can resist that only so long.”

But Wolters, of the dealers association, said the current system was set up partly to prevent manufacturers from creating monopolies. Among other things, he said, dealerships play a role in consumer safety by providing automobile owners with a place to take their vehicles in the event of recalls or warranty service, and they’re deeply ingrained in communities.

There currently are 1,309 dealership locations in 284 Texas cities and towns, Wolters said, 163 of which have populations of under 15,000 people. Every Texas resident is within 30 miles of an automobile dealership, he said.

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