Elon Musk’s luxury electric car company Tesla has been dealt a serious blow after New Jersey became the third state to ban the company from selling its cars directly to customers. According to Musk, Governor Chris Christie’s administration went back on its word to let Tesla run its own retail stores, forcing the company to sell its cars through third-party auto-dealer franchises just like Honda, Ford, and the rest.
A couple weeks back, Pando contributor Tim Worstall wrote a post arguing that the fight between Uber and taxi cab commissions has all the same elements as the fight between Tesla and auto-dealerships:
They are both the same story: How incumbents, insiders in the political process, are willing to subvert that political process for their own economic gain. A gain, we should note, that comes at the expense of us consumers.
Worstall’s not alone in comparing Tesla to Uber. On Twitter, Y Combinator’s Paul Graham writes, “Banning Tesla is an index of the corruptness of state governments as banning Uber is of city governments.”
But is the analogy really so cut and dried? Not quite.
First let’s look at Uber and the taxi commissions: Worstall is right that the process of giving out licenses to taxi drivers in New York is a mess, with restrictions placed on the number of licenses or “medallions” granted at any given time. As a result, it’s not uncommon for such medallions to sell for $1 million a pop, leading to increased fares for riders and lower incomes for drivers who are forced to share their income with the medallion owners. Uber’s model, in theory at least, leaves more cash on the table for drivers while providing better service for riders.
But New York’s Taxi and Livery Commission (TLC) does more than restrict and dole out medallions. The TLC conducts safety and emissions inspections, and investigates claims of cabbie extortion and rider complaints. Furthermore, the medallion issue is somewhat of a red herring for Uber defenders. The only cars that require medallions are yellow cabs that pick up passengers in response to street hails, and not “black car” services ordered ahead of time like Uber.
The real problem is that companies like Uber resist regulation of any kind, placing the safety of passengers and pedestrians solely on the shoulders of drivers. Uber wants to operate like eBay, where the sellers (or in this case, drivers) merely rent Uber’s platform for their own business. It operates on the overly-idealistic notion that “the crowd” will sort out the good actors and banish the bad. Anyone who’s had a terrible experience dealing with an eBay seller with a high rating knows this system is never foolproof. And driving a car is not the same as shipping an antique: The consequences of an automobile accident are far more devastating than a broken lamp.
Now let’s look at Tesla and the auto-dealers. The position of auto-dealers is far less defensible. The only argument I’ve seen for why auto-dealers should exist (other than to perpetuate their own existence) is that each franchise is independently-owned and thus the economic activity it generates goes back into the community. Okay fine, but that’s a pretty weak argument that doesn’t come close to justifying the Tesla bans we’ve seen in Texas, Arizona, and now Jersey. There’s no compelling public safety, emissions, or liability reason for auto-dealers to exist like there are for taxi commissions, dysfunctional as they are. The safety of Tesla vehicles — and all cars on American roads — is monitored by the National Highway Safety Traffic Administration. Instead, auto-dealers exist because they possess influence over politicians, a precise example of the rent-seeking Worstall rightfully rails against.
None of this is to say the taxi incumbents are saints. Just yesterday, a taxi trade publication in Chicago threatened to out a “secretly gay” alderman if the city refuses to ban Uber and other ride-sharers. And the medallion system in New York is clearly in need of reform. But just because an institution is corrupt doesn’t mean the purpose of that institution isn’t worthwhile. And in many cases, government entities carry out that purpose without undue stress on companies’ ability to compete.
In the case of Tesla, state government policies that keep auto dealers in business and threaten to knee-cap Tesla’s sales simply perpetuate entrenched interests above the consumer and disruptive startups. Not only do they hurt Tesla, they hinder chances that electric cars can achieve widespread adoption.
That’s why it’s important to make a distinction between companies like Uber, which in its disruption-obsessed zeal refuses government intervention of any kind, and Tesla, a company that’s willing to work with governments but won’t tolerate getting screwed by them.