James Surowiecki in the New Yorker makes it clear, using the case of Tesla in New Jersey, that government regulation can kill innovation and investment even before it’s had a chance to start. I find it fascinating that for Tesla to sell without going through a car dealer (a la Apple), is effectively illegal in 48 states of the US. Completely bewildering – but then as the article also points out, when the costs are too diffuse, the party that stands to gain the most wins – and in this case it’s the dealers.
Tesla, since it’s starting from scratch, has no existing dealers, and so in theory it isn’t encroaching on anyone’s turf. But auto dealers around the country have still been lobbying state governments to force the company to change its ways. Dealers like the existing system, and they don’t want other automakers to get any ideas. Fiona Scott Morton, an economics professor at Yale who has written extensively on car dealers, told me, “There isn’t a rational argument for why a new company should have to use dealers. It’s just dealers trying to protect their profits.”