Berkshire Automotive Caught in Law of Unintended Consequences

Berkshire Automotive Caught in Law of Unintended Consequences

April 21, 2016 — Berkshire Hathaway Automotive finds itself the victim of the law of unintended consequences in Texas’ fight to keep electric vehicle manufacturer Tesla from selling direct to consumers.

The problem is that Texas’ legislation  prohibiting manufacturers from selling vehicles directly to customers in the state was written so broadly that it includes all vehicle manufacturers, including manufacturers of vehicles other than cars and trucks. Berkshire Hathaway is classified as a vehicle manufacturer under Texas law because of its ownership of Indiana-based Forest River Inc., a recreational vehicle manufacturer. Also a problem is Berkshire’s investment in Chinese EV automaker BYD.

(For more coverage, read the story in The Texas Tribune about Warren Buffett’s Texas visit seeking special carve out legislation).

The quandary has Berkshire executives scrambling, report numerous state media outlets. Warren Buffett visited Austin, the state capital, this week to meet with state officials seeking an exemption from the law. An exception was proposed the next day in the form of Senate Bill 2279, which would allow manufacturers to own dealerships selling vehicles they don’t manufacturer.

The bill was fastracked making it out of committee and is now headed to a vote on the Senate floor, likely within the next few days.

The House has yet to create a similar bill.

The quandary could be a big problem for Berkshire which has 34 dealerships in Texas according to its website. It wouldn’t be that big of an issue except Tesla, which has tried to get a similar exception allowing it to sell vehicles in the state has been unable to get a bill onto the Senate or House floors for votes since 2013. In March of this year, Tesla submitted bills in both the Senate and House in March this year that have yet to be scheduled for a public hearing — and it’s likely they never will.

It should work out in Berkshire Hathaway’s favor over the next few weeks barring any surprises. If not, the company will have to decide between selling the dealerships or its RV manufacturer. And chances are it will have to shed its investment in BYD if it opts to stick with its dealerships.

The issue again brings to the forefront in Texas the fact that it is one of four states (Michigan, Connecticut and West Virginia are the others) prohibiting Tesla from selling directly to consumers. So far, the Texas Auto Dealers Association has stymied Tesla’s efforts, but pressure continues to increase on state legislators to allow proposed legislation receive public hearings.



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