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New Jersey Shuts Down Tesla’s Direct Car Sales

March 13, 2014

Tesla Motors Inc. want to sell its cars directly to customers in New Jersey, but the state recently prevented it from doing so. On Tuesday, the New Jersey Motor Vehicle Commission passed the rule against the electric car manufacturer’s direct selling business model.

The commission approved the rule that requires all new cars to be sold through auto franchises. This will force Tesla, which sells its vehicles directly to customers through its own stores, to sell its electric cars through dealerships.

Back in October, the commission voted for several rule changes that will shut down the automaker’s two factory-direct stores as well as the mall showrooms it used to showcase its products. Tesla requested to postpone the changes to allow a period of comment. Tesla, as well as the New Jersey Coalition of Automotive Retailers (NJ CAR), sent comments. The NJ CAR do not want the electric car company selling its vehicles directly to the public.

Following a month of discussions between Tesla and members of New Jersey Governor Chris Christie’s administration, Gov. Christie voted in favor of the commission’s rule that forces Tesla to adhere to the same rules as other car manufacturers. As per the ruling, Tesla must close its two New Jersey stores by April 1. The company is also banned from opening other stores in the state.

New Jersey residents can still purchase Tesla’s electric cars. They just have to leave the state to do it.

Tesla is furious over the decision, and had accused Gov. Christie of backtracking on his promise to allow them to plead their case on a public forum. The company still had been in discussions with the governor’s counsels in January, and it was agreed that the automaker and the NJ CAR would be dealing with the issue through the New Jersey Legislature.

Tesla issued a statement: “The Administration and the NJMVC are thwarting the Legislature and going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers.”

The fight is not yet over for Tesla. CEO and co-founder Elon Musk had mentioned that his next move may be a federal lawsuit or a similar action on the national level.

The ruling made New Jersey the third state to ban Tesla from selling its cars directly to customers, following Texas and Arizona. Interestingly, both states are two of the four states in the Southwest being considered as the location of Tesla’s enormous $5 billion, 6,500-job battery factory. The two other states are New Mexico and Nevada.

Dealerships in other states have also filed lawsuits against Tesla’s sales model. States that oppose direct car selling include Ohio, New York and Massachusetts.

Unlike other car manufacturers which sell their vehicles through third party dealerships, Tesla sells its environment friendly rides through its own retail locations. Direct selling enables Tesla to reduce the costs for customers.

Moreover, direct selling is deemed the best way to introduce the automaker’s products. Tesla wrote in its blog that their sales model is crucial “to introduce our own vehicles to the market because electric cars are still a relatively new technology.”

Tesla is the company behind the Model S, the sedan that was recently named the best car overall by Consumer Reports.

Photo credit: Wonderlane/ Flickr/ CC BY

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