Statewide NewsTransportationAs Tesla Launches New Austin Factory, Direct Manufacturer Sales Still Illegal in Texas

Tesla is now headquartered in Austin and celebrated the launch of its massive new factory, but car purchases in Texas have to be done online.
April 8, 2022
Tesla CEO Elon Musk took to the stage Thursday night in a black cowboy hat and sunglasses to celebrate the launch of the company’s new factory in Austin at an event the electric carmaker dubbed a “Cyber Rodeo.”

While Tesla said in an investor update that the factory began production of the Model Y, an SUV in its electric vehicle lineup, in late 2021, Musk announced that the factory will begin production of its Cyber Truck next year.

Texas officials gleefully welcomed Tesla to the Lone Star State when Musk suggested the possibility of opening a factory here in 2020, and the company was ultimately offered $60 million in local property tax breaks for the opening of the car plant.

Last October, Musk announced that more than just establishing a new factory in Texas, the company would also move its headquarters to Austin.

“Why Austin?” asked Musk. “We’re continuing to expand in California, but we ran out of room. We need a place where we can be really big and there’s no place like Texas. So here we are.”

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“We’re 10 minutes from the airport, 15 minutes from downtown,” said Musk. “Thank you Austin; thank you Travis County.”

In addition to vehicles, the company is also using its Texas factory to build battery cells, and Tesla’s CEO said he believes that “over time, this will probably be the biggest cell factory in the world.”

Musk said the new factory, the largest in the world by volume, is three times larger than the Pentagon and would reach over a thousand feet higher than Dubai’s Burj Khalifa if turned on its side. “According to our calculations, you could fit 194 billion hamsters in this building,” said Musk.

With the new location, Tesla redesigned its factory layout by drawing inspiration from microchips to make its production more efficient.

While the Texas Gigafactory will be the “highest-volume car factory in America,” according to Musk, there will be more speed bumps in delivering those vehicles to Texans.

Texas law regulates the auto-sales marketplace through a decades-old “three-tier” system that requires a dealership to be the middleman between consumers and new car manufacturers.

To cut the cost of markup fees and maintain a direct relationship with customers, both for sales and repairs, Tesla — like many other new electric vehicle makers — has adopted a direct-sales model rather than routing purchases through third-party dealers like most major manufacturers.

Even with Musk’s fame and Tesla’s move to the Lone Star State, there seems to be little appetite among lawmakers to make changes to the three-tier system.

Several bills to completely overhaul the market regulation have crashed to their deaths in committees over the past several sessions.

Even a bill from Rep. Cody Harris (R-Palestine) introduced last session, which would have created an exclusion in the policy for companies that exclusively manufacture electric vehicles rather than completely dismantle the system, met a sudden stop early in the process.

Unlike many bills that die quickly, though, Harris’s legislation did receive a hearing in the House Transportation Committee.

But members of the committee did not shy away from their defense of the protectionist policies for car dealers.

“The idea that we’re going to start working around [the three-tier system] and start making exceptions is highly unlikely,” said Rep. Terry Canales (D-Edinburg), the chair of the committee, to a lobbyist representing Rivian, another electric vehicle manufacturer.

“But I will tell you that I do believe that there’s possibly a policy discussion to give you a portion where you reach a certain sales and you divest yourself of that interest,” added Canales.

In a discussion with another lobbyist representing the Alliance for Automotive Innovation, Canales said that he wanted to protect the interests of dealerships in his district but noted that the policy does present a barrier to entry for manufacturers and further suggested some way to help “fledgling” carmakers.

Another member on the committee, Rep. Glenn Rogers (R-Graford), emphasized his support for dealerships.

“I’m in a very rural district, and our auto-dealers are a vital part of our community. They give back by donating to little league and you name it,” said Rogers. “We’re talking about taking away dealers that are some of the largest employers in our rural communities outside of schools and hospitals.”

Even Harris himself, who called the three-tier system a “barrier to competition and consumer choice,” told Rogers that he agrees “100 percent on the invaluable contributions that our franchise dealers make to our small towns and our communities.”

Unless the legislature has a change of heart in the future, prospective Tesla owners in Texas will need to continue making a detour to purchase a vehicle.

The company operates “showrooms” throughout the state. Consumers cannot make a purchase at those locations, but they can make a purchase online and have the vehicle delivered to a location for pick-up.


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Daniel Friend

Daniel Friend is the Marketing and Media Manager for The Texan. After graduating with a double-major in Political Science and Humanities, he wrote for The Texan as a reporter through June 2022. In his spare time, you're likely to find him working on The Testimony of Calvin Lewis, an Abolition of Man-inspired novel and theatrical podcast.