Tesla sues Michigan over ban on direct sales of its electric cars

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Tesla Store Los Angeles [photo: Misha Bruk / MBH Architects]

Tesla Store Los Angeles [photo: Misha Bruk / MBH Architects]

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Earlier this month, an application for a dealer license submitted by Tesla Motors was denied by the state of Michigan.

It was the final decision in a process that kicked off in October 2014.

That was when a last-minute wording change in state franchise law foreclosed the electric-car maker's ability to sell cars directly to buyers, its business model since it started.

DON'T MISS: Michigan says selling Tesla electric cars in state is illegal, again

That change, called "corrupt politics at its worst" by a professor of law, ensured that the sole legal way to buy cars in Michigan is to do so from a franchised third-party dealer.

So an arm of Tesla Motors submitted an application to become a legal dealership in Michigan. That's the application that was denied.

On Thursday, Tesla Motors sued the state of Michigan, challenging its franchise law as unconstitutional, according to The Detroit News.

2016 Tesla Model S

2016 Tesla Model S

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It's a different tack from previous suits filed in various states where dealership lobbyists have convinced legislators to pass laws ensuring that only dealers may sell cars to buyers.

That same law professor suggested to the Detroit News that this case has the potential to upend the industry if Tesla prevails.

The electric car maker in the past has negotiated with state dealer bodies, accepting limits on how many Tesla Stores and service outlets it can open in some states.

CHECK OUT: MI Gov Snyder Signs Anti-Tesla Bill Called 'Corrupt Politics At Its Worst' (Oct 2014)

Daniel Crane, a law professor at the University of Michigan, follows the Tesla sales issue closely.

He said that Tesla has resisted filing such a lawsuit until now, calling the tactic "a last resort" when all other avenues have been exhausted.

But, he suggested, if a federal appeals court ultimately rules that the Michigan law is unconstitutional, that "could really send shock waves around dealers" throughout the U.S.

Buyers waiting to reserve Model 3 electric car, Tesla Store, Santa Barbara, CA [photo: David Noland]

Buyers waiting to reserve Model 3 electric car, Tesla Store, Santa Barbara, CA [photo: David Noland]

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The Michigan process by which its law was changed in 2014 was particularly dubious, and came in for criticism at the time.

Today, The Detroit News also carried an opinion piece by its columnist Daniel Howes, who covers state business issues and the automotive industry in general.

It's surprising, he wrote, that Tesla has taken this long to attack "the hypocrisy of Michigan’s theoretically enlightened take on the transforming auto industry."

His column is a bracing rebuff to the power of auto-dealer lobbying, and underscores the question that strikes many consumers when they discover that it's illegal in many states for them to buy a car from the company that makes it.

If I can buy an iPad online at either an electronics retailer or from Apple itself, their argument goes, then why can't I do the same with a car?

Used car salesman

Used car salesman

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Howes notes that the 20th-century history of direct sales by carmakers is hardly stellar, and that it's far less clear than many think that dealerships and dealer networks would fall apart.

But if the auto industry is being transformed by electrification, autonomy, connectivity, and sharing as much as the executives of GM and Ford regularly say it is, he asks, then why should the distribution of cars stay the same as it was 100 years ago?

Automakers are embracing those changes and sprouting new business models left, right, and center to test out new forms of transportation and how to make money from it, Howes notes.

And he suggests that perhaps dealers should do the same.

So it seems quite likely that many, many people outside Michigan will watch the process of this court case with great and continuing interest.

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