Tesla sues Michigan, challenges law requiring dealer sales

by Ben Pena September 23, 2016, 0:49
Tesla sues Michigan, challenges law requiring dealer sales

Last year, the company made its first in-state acquisition, a tool and die shop in Grand Rapids (roughly 150 miles west of Detroit), but apparently that wasn't enough to curry favor with the powers that be. The state stalled for months but eventually rejected the application, setting the stage for a legal showdown.

Tesla TSLA, +0.86% has been fighting state franchise laws around the country, trying to set up its own retail locations while facing intense resistance from independent franchise dealers and auto makers. Essentially the argument rejects Tesla's attempt to be its own franchisor, despite having no third-party franchisees with which to compete.

Tesla on Thursday filed a lawsuit against MI officials in an effort to strike down a law that prohibits the company from selling vehicles directly to consumers in the state.

Tesla, the electric vehicle company based in California, is suing MI over its law that prohibits direct-to-consumer sales of cars. The California-based automaker has also accused General Motors of pressuring legislators to adopt the ban.

Tesla wants to sell its high-end battery-powered cars directly to consumers without a franchised dealer, much like Apple sells its products.

Jarrett Skorup, a policy analyst with free-market think-tank Mackinac Center for Public Policy, which supports changing the law, said that people should be able to freely sell goods and supports Tesla's position that it has a right to sell vehicles in MI without interference from dealerships.

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Tesla's lawsuit takes aim at the heart of the dealership sales model, alleging it amounts to a state-sponsored monopoly.

The law, backed by the Michigan Auto Dealers Association and General Motors, didn't specifically mention Tesla, but it was commonly known as the "anti-Tesla bill" when the Legislature passed it and Snyder signed it.

In other states, Tesla sells its vehicles directly to consumers, but that is illegal under MI law, which requires a dealer to have a contract with an auto manufacturer. The bill was backed by the Automobile Dealers Association of MI as well. The automaker has said 373,000 customers have paid to reserve Model 3 cars. MI is considered to be the hub of the automobile industry, and not selling your vehicle there is frustrating for the auto manufacturer.

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Updates with Tesla statement and detail on sales model.

Tesla operates almost 100 stores in 23 states and the District of Columbia. To buy a Tesla now, Michiganders have to drive to Chicago, Cleveland, Columbus, Cincinnati or Indianapolis, where the automaker operates galleries, mostly in upscale shopping malls.

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