In revenge for CEO Elon Musk’s support of the Trump administration, New York Democrats hope to pass a statewide measure that would strip Tesla of its privilege to sell automobiles directly to customers.
The chances are good because the party controls both the legislative and executive branches of the state government. Every second totally electric vehicle registered in New York is a Tesla.
In response to CEO Elon Musk’s support for the Trump administration, Democratic lawmakers in New York are pushing to repeal a waiver that permits Tesla to sell cars in the state’s EV-friendly environment.
In 2014, the state government in Albany prohibited automakers from selling directly to consumers instead of traditional automobile dealers. Tesla was awarded the only exemption in the entire automotive industry, allowing it to grandfather in five locations.
Now, state Democrats are criticizing the move.
“Why should we give them a monopoly?” state senator Patricia Fahy remarked, according to a New York Times piece published on Sunday.
Fahy, a co-sponsor of a bill presently passing through both houses of the state legislature, referred to Musk as “part of an administration that is killing all grant funding for electric vehicle infrastructure, wind energy, and anything that might address climate change.”
New York, which has both a Democratic legislature and an executive branch, is one of only a few states that encourage the use of electric vehicles. Albany’s administration has set a goal of achieving 100% zero-emission new vehicle sales by 2035 in the state, which is the fourth most populous in the country.
Fortune was unable to reach Tesla, whose clients would most certainly be compelled to go out of state to accept a car at one of its other delivery centers.
Fahy’s bill is the latest repercussion of the acrimonious feud between the Democratic Party and Tesla’s CEO during the Biden administration. During the post-pandemic inflation spike, Musk’s wealth and anti-union politics made him a target for a party trying to re-engage with its working-class base.
In reaction, the angry entrepreneur donated a quarter-billion dollars to the president’s campaign, despite Trump’s longstanding antipathy to Tesla’s EVs and renewable-energy storage.
Why doesn’t Tesla use dealers to sell cars?
For decades, vehicles such as the Chevrolet Silverado produced by General Motors have been delivered wholesale to dealers, who then mark them up and sell them for a tiny profit. These independent stores maintained the consumer relationship at all times, allowing carmakers to focus on aspects such as engineering and branding.
Because of dealers’ influence in their communities, America’s heavily fragmented automotive retail sector has long barred carmakers from selling directly to customers. This had not been an issue for most automobile manufacturers in the past, because selling directly to consumers would have reduced their margins when cars were primarily analog.
Tesla had a different approach from the start, avoiding independent dealers completely. Musk saw that cloud computing enabled all new business models that could only be realized if a brand owned the relationship with its customers and was allowed to mine their digital profiles for insights into what owners might need or want.
Its whole self-driving software, which will serve as the foundation for its next robotaxi experiment, would be impossible to develop without drivers volunteering their data over several years to help it perfect its AI model.
What does this mean for Tesla?
Under Lahy’s suggestion, the exemption from franchise laws might be revoked in favor of brands like as Rivian, Lucid, and Volkswagen’s planned Scout, all of which rely on a direct-to-consumer sales model.
Now, Lahy claims she is “making amends” for being wrong about Musk in the past, when she supported Tesla’s original purpose to develop sustainable transportation.
The Empire State is an important market for Tesla. Most EVs are sold in warmer locations such as southern California, Texas, and Florida, where temperatures are more accommodating to battery ranges. New York is one of the few northern states that has embraced EVs, with almost 172,000 already on state highways, half of which are Teslas.
If Lahy and her colleagues succeed, limiting Tesla’s ability to compete in New York may deal a serious blow to the firm, which is losing ground to archrival BYD.
Last Monday, Tesla posted first-quarter earnings with a group operating margin of 2.1%, the lowest since the second quarter of 2019. Underlying profitability in its main car business plummeted to its lowest level since the Model Y introduction, which propelled Tesla to a trillion-dollar stock market valuation.
