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Tesla Challenges NJ Direct Car Sales Ban in Court

April 3, 2014

Tesla Motors Inc. appealed to the New Jersey Superior Court to overturn the ruling imposed by the state Motor Vehicle Commission that requires new-car dealers to have franchise agreements in order to be licensed and therefore prohibits the automaker from using its direct-sales model.

The March 11 ruling bans Tesla from selling its cars directly to customers. The electric carmaker has been selling its products at two factory-owned locations in New Jersey for about two years. The stores are located in Garden State Plaza in Paramus and the Mall of Short Hills.

Last month’s ruling initially halted Tesla’s direct sales effective April 1. However, the company was given a two-week extension, as the New Jersey Motor Vehicle Commission allowed new-car dealers until April 15 to give their franchise agreements.

In the court filing, Tesla claimed that when the Motor Vehicle Commission amended the ruling, it had overstepped its authority and violated the state’s constitution. The company also said that the commission had acted in favor of the New Jersey Coalition of Automotive Retailers.

“The MVC’s decision to reverse itself, done at the behest of New Jersey’s franchise dealer special interest lobby, exceeded its regulatory authority and circumvented both the New Jersey Legislature and the people of New Jersey,” said Tesla in the court papers.

“Franchise dealers have an inherent conflict of interest in selling electric vehicles,” the company asserted. “In order to do so effectively, they would need to enthusiastically tout the reasons why electric vehicles are superior to gasoline vehicles. This is not something that they are going to do since gasoline vehicles represent virtually all of their revenue.”

The president of the New Jersey Coalition of Automotive Retailers, James Appleton, responded to Tesla’s appeal by criticizing the carmaker’s attempt to be exempted from state regulations.

“No one wants to see Tesla out of business in New Jersey. But the NJMVC must fairly and equitably enforce the law and Tesla should be required to play by the same rules as everyone else,” Appleton said in a statement.

Dealers in New Jersey, as well as other states, are opposing Tesla’s direct-sales model because they consider it as a threat to price competition. They argue that selling vehicles through dealerships is more advantageous for consumers since it allows car buyers and owners to access more affordable products and services.

While Tesla is also prohibited from directly selling its vehicles in Texas and Arizona, the Palo Alto, California-based firm has reached a compromise to continue its direct-sales model in other states. Ohio recently allowed the carmaker to open a third store, while New York’s dealer coalition has agreed to let the company continue operating its five existing stores.

Interestingly, though some states seem to be pushing Tesla away, others are courting the company in order to be chosen as the location of its Gigafactory.

Tesla recently expressed plans to use only raw materials from North America for the $5 billion battery factory. According to Tesla spokeswoman Liz Jarvis-Shean, the company will not source graphite, cobalt and other materials from other countries.

“It will enable us to establish a supply chain that is local and focused on minimizing environmental impact while significantly reducing battery cost,” she wrote in an email.

Photo credit: Don McCullough/ Flickr/ CC BY

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