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Will NM law affect chances of getting Tesla battery factory?

Copyright © 2014 Albuquerque Journal

Three of the four states named as finalists in the “gigafactory” sweepstakes explicitly prohibit Tesla Motors Inc. from selling cars directly to consumers – including New Mexico.

But that doesn’t necessarily make Nevada, the only one of the four that doesn’t prohibit the direct sales, the odds-on favorite to secure the California car manufacturer’s $5 billion battery factory, analysts say.

In fact, the analyst who has been most bullish on New Mexico’s chances of winning the project said in an interview Wednesday that “whether a certain state allows sales directly to customers is a nonevent.”

“Sooner or later, almost every state will have to allow Tesla to sell cars directly” because consumers want that option, said Trip Chowdhry of Global Equities Research of Redwood Shores, Calif.

Last month, Tesla said it had narrowed the finalists for its 10 million-square-foot plant to four states: Arizona, Nevada, New Mexico and Texas.

Of those states, Arizona, New Mexico and Texas have laws on the books that limit Tesla’s presence to so-called “galleries” – locations where consumers can learn about the battery-powered cars but cannot test-drive, talk price or purchase one.

“We currently operate galleries in Texas, Arizona, Maryland and Virginia,” said Alexis Georgeson, a Tesla spokeswoman, in an email response to a Journal inquiry this week.

“Our galleries are educational centers where visitors can sit in a static Model S and speak with knowledgeable product specialists about Tesla technology and the benefits of going electric. However, laws in these states currently prevent us from taking orders, discussing price, or giving test drives.”

Conversely, Nevada operates what Tesla describes as a “store” in Las Vegas, where customers can schedule a test drive, talk to a salesperson and order a new car from California.

“None of our stores (or galleries) carry inventory,” Georgeson said. “Every car that comes off the Tesla factory line is built to order, customized to meet each customer’s specific wants and needs.”

As for New Mexico, there are no Tesla stores or galleries in the state, though Georgeson said the company plans to open a combined sales and service facility in Albuquerque at some point. But that could require a change in state law. The New Mexico Motor Vehicles Dealers Franchising Act makes it unlawful for a manufacturer to function as a licensed dealer in New Mexico.

Specifically, the law prohibits a car manufacturer from being “licensed as a dealer or perform warranty or other service or own an interest, directly or indirectly, in a person licensed as a dealer or performing warranty or other service.” For Tesla to sell cars here, then, it would have to either persuade lawmakers to change the law or use franchised dealerships, which would run counter to the company’s business model.

The law is similar to those enacted in other states, including Texas, where even a personal visit from Tesla CEO Elon Musk last year failed to persuade the state Legislature to change the law, because of pressure from the Texas Automobile Dealers Association.

Generally, auto dealers are protective of the long-standing franchise arrangement, which they say protects consumers from manufacturers who may be less inclined to honor warranty and recall agreements.

But critics have argued that dealers are more interested in protecting their own sales and service businesses against manufacturers who want to sidestep the franchises and sell directly to consumers.

Today, Tesla’s only public presence in New Mexico are “supercharger” stations in Farmington and Gallup, where Tesla owners can charge their vehicles’ batteries at no cost.

Still, Nevada’s decision to permit direct sales to consumers is not enough in itself to secure Tesla’s massive battery plant, which is expected to employ up to 6,500 workers, two analysts who follow the company told the Journal.

“If you are asking me, does a state by allowing direct sales make themselves a better candidate for a gigafactory, I’d say that’s not the case,” said Jamie Albertine, an automotive analyst and vice president at Stifel, Nicolaus & Co. Inc. of St. Louis. If Tesla were to select Nevada as the site for its battery plant, he said, it will have more to do with its proximity to the company’s Fremont, Calif., manufacturing facility than it will to its acceptance of the direct-sales model.

Chowdhry, who is on record as saying he believes Tesla ultimately will choose New Mexico as the home for its battery plant, agreed Nevada’s willingness to allow the company to sell cars in the state won’t be the deciding factor.

“The bottom line is whether a certain state allows them to sell is a nonevent because it’s only a matter of time … cars will be sold directly to consumers,” he said.

Chowdhry also said it’s absolutely critical for New Mexico leaders to put Musk in the position of going to his board of directors with the best offer.

“This is a God-given gift,” he said. “Someone is knocking at your door and giving you $6 billion.”

Tesla operates 46 stores and four galleries in the United States, as well as four stores in Canada, according to the company’s website.

The number of stores is expected to shrink by two, however, because the New Jersey Motor Vehicle Commission issued a ruling Tuesday that will prohibit Tesla from selling directly to customers as of April 1.