Tesla's direct car sales loophole survives in Washington state — for now

Two bills that would’ve ended a loophole benefitting Tesla died in the Washington State Legislature last week.

In Washington state, most cars must be sold via independently owned local dealerships. But over a decade ago, when Tesla was a new automaker and, essentially, the only electric option available to middle-class car buyers, the company secured a loophole: Unlike any other auto-maker, Tesla could open stores in places like Seattle’s South Lake Union and sell directly to consumers.

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In the years since, electric automakers like Rivian have emerged and opened service centers and showrooms in Seattle, but they cannot sell cars, do paperwork, or discuss financing options at those facilities. Rivian doesn’t even call what happens there a “test drive” – they use “demo drives” or “educational drives” instead – and stress the cars being driven are not for sale.

Senate Bills 5377 and 5592, sponsored by state Sen. Rebecca Saldaña (D-Seattle), were the latest of several efforts to “have a conversation” about how to end the loophole favoring Tesla, Saldaña told KUOW earlier this month. One of them would have removed Tesla’s exemption, requiring the company to sell at local dealerships. The other would have opened up the exemption to any company that only manufactures electric vehicles.

“Why do we make this exception for this one company?” Saldaña said. “I was hearing from car dealerships that… they're frustrated that there is this workaround.”

Saldaña, a Democrat, said she’s been planning this legislation since before Tesla’s CEO Elon Musk embraced Donald Trump’s 2024 run and launched the “Department of Government Efficiency.” The bills happened to have their first readings on Trump’s inauguration day, when Musk did several apparent Nazi salutes in front of a crowd. Since then, protesters have gathered outside Tesla dealerships in Seattle and worldwide.

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“I won't say that I didn't at least think about the fact that it would probably draw attention, and, hopefully, we can then direct that attention to actually solving problems,” Saldaña said.

But beyond attention, both bills drew significant pushback from different sectors of the auto industry and green energy.

Tesla did not respond to multiple requests for comment, but the Northwest Regional Sales Manager Ava Ames testified against SB 5377 in a committee hearing earlier this month. Ames said that bill would eliminate jobs “for hundreds of people and families who are still very much dedicated to leaving the world in a better place than they found it.”

Local auto dealers liked SB 5377 because it would’ve returned to the days when dealerships were the only place in Washington where you could buy a car in person, get the paperwork and financing handled, and drive it off the lot. But they opposed SB 5592, which would’ve allowed Rivian and other EV makers to open up their own stores.

“When Tesla entered the market, EVs were a novelty – and exceptions were made. That’s no longer necessary,” Brad Brotherton, who owns Cadillac, Buick and GMC dealerships in Renton and Shoreline, testified before the committee. “If [electric automakers] want to sell to customers in person, they must follow the rules. The franchise system exists for one reason: to promote competition, protect consumers, and ensure access to service. This system should be preserved.”

On the opposite end, Rivian, Lucid Motors, and some climate advocates opposed SB 5377 (ending Tesla’s exemption) but liked SB 5592 (opening up the exemption to electric-only automakers), arguing it would result in more sales of electric vehicles and get the state closer to phasing out all sales of gasoline-powered cars by 2035.

RELATED: Washington to phase out new gasoline-powered cars by 2035

“You don’t have to choose between dealers and direct-to-consumer companies,” Rivian Public Policy Manager Hannah Steinweg told lawmakers. “We have seen over time that the direct-to-consumer business model does not hurt dealers.”

Perhaps because of the crossfire, neither bill made it through the Senate Labor and Commerce Committee before the cutoff to do so, which was Feb. 21. In an emailed statement, Saldaña said time constraints played a role, but “the larger issue is the differing perspectives on the best path forward.”

“Many of my colleagues share the perspective of car dealerships, recognizing their vital role in local economies. At the same time, many constituents want expanded access to direct sales,” Saldaña wrote. “However, the one company that currently has that right has not instilled confidence that it is committed to investing in communities as small dealerships do. Striking the right balance will require continued discussions, but I remain committed to working with all stakeholders until we get this right.”