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Franchise Law Update Commentary on Business and Legal Issues of Franchising

The Fight Over Tesla, Continued

Posted in Industry Updates

file0002049699944Last year, I wrote about Tesla’s efforts to sell its vehicles directly to consumers, and the efforts of dealers and their legislative allies to prevent direct sales.  I won’t rehash those arguments here.  Suffice it to say that franchised dealers want Tesla to sell its cars–which start at $71,000–through franchised outlets.  Every state of the union has such laws, though some states–the large commercial states of New York, Florida, Pennsylvania, Illinois and California among them–have permitted direct sales.

At the time of last year’s article, New Jersey was also in the ranks of states permitting the sale of Tesla automobiles directly to the public.  Last week, that changed.  Effective April 1, 2014, Tesla is now required to sell in New Jersey through licensed franchise dealers.  Specifically, the New Jersey Motor Vehicle Commission refused to issue Tesla a license to sell cars directly to consumers, and indicated that Tesla’s original permission to sell the cars directly was a “mistake”.  This means that Texas, Arizona and New Jersey all ban Tesla from selling cars directly to consumers.  Additionally, an attempt to change North Carolina law to prevent direct auto sales failed last year.

At the end of the day, New Jersey’s decision probably doesn’t impact consumers too heavily. After all, someone wanting to purchase a Tesla in New Jersey need only cross the Hudson or Delaware Rivers into New York or Pennsylvania to make the direct purchase.  The Tesla test case continues to fascinate, though, precisely because it represents a disruptive challenge to a well-established way of doing business.  Will more states follow New Jersey’s lead and re-interpret their state auto dealer franchise laws to require sales through dealerships? Or will Tesla’s reportedly furious lobbying effort at the federal level lead to greater federal intervention in the franchise community?  The second result would be curious, as it would represent federal regulation of the sort that arguably favors the free market at the same time it would be choosing a potential winner in the marketplace.  Stay tuned.