Tesla appeals N.J. ruling on direct-sales ban

A Tesla store at the Short Hills Mall in Short Hills, N.J., in March. The company filed an appeal today in New Jersey Superior Court to overturn last month's ruling that bans the EV maker from selling cars directly to consumers through factory-owned stores in the state. Photo credit: BLOOMBERG

Tesla Motors Inc. filed an appeal Wednesday in New Jersey Superior Court to overturn last month’s ruling that banned the electric-vehicle maker from selling its cars directly to consumers through factory-owned stores there.

The New Jersey Motor Vehicle Commission’s March 11 ruling will halt sales at Tesla’s two New Jersey stores, effective April 15. The New Jersey Coalition of Automotive Retailers supports the commission’s position.

The news comes as Tesla CEO Elon Musk continues his fight against U.S. auto dealers, as he seeks to expand a direct sales model that often runs afoul of state laws protecting franchised dealers.

Those laws generally prohibit factory-owned stores. In some states, though, compromises have been reached that give Tesla approval to sell directly from a limited number of stores.

Harm to consumers?

Tesla, in a statement today, said New Jersey’s ban is not legally permissible and that it directly harms that state’s consumers.

“As the [Motor Vehicle Commission] itself recognized when it licensed two Tesla locations in 2012, New Jersey law was clearly written to prevent car manufacturers from exploiting their greater market power to compete unfairly against dealership franchises that sell their cars, something that simply doesn’t apply to Tesla because it has no dealership franchises,” Tesla said in the statement.

In order for dealers to effectively ban its direct sales model, “they would need to enthusiastically tout the reasons why electric vehicles are superior to gasoline vehicles,” Tesla said in court documents.

In response to the appeal, Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, said in a statement, “We are confident that the courts will recognize the compelling state interest in regulating the sale and distribution of new motor vehicles and that Tesla’s legal challenge of the NJMVC rules will fail.”

Price competition

Dealers fighting Tesla’s direct-sales model say the EV maker in some cases is breaking long-standing state laws that promote price competition -- in that dealerships compete on price whereas a factory-owned outlet has no reason to do so -- and protect consumers, particularly in areas of warranty coverage and safety recalls.

“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 of the dealers coalition said in the statement.

He said the coalition “is committed to working with members of the legislature who are seriously exploring options that would allow a startup electric carmaker, like Tesla, a reasonable period of time to ramp up operations before they conform their operations to the franchise business model.”

Tesla accusation

Tesla has accused Gov. Chris Christie of striking a deal with the auto dealers coalition.

“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,” Tesla said.

The governor has maintained he was just enforcing the law.

“I’m not pushing Tesla out; the state Legislature did,” Christie said at a recent town hall meeting, according to a report in the Newark, N.J., Star-Ledger. “They passed a law, which is still on the books, which says if you want to sell cars in this state, you must go through an authorized dealer. My job is not to make the laws; it’s to enforce the laws. And Tesla was operating outside the law.”

Most recently, Ohio’s Senate approved a bill Tuesday that allowed the automaker to open a third store in the state. New York auto dealer groups made a similar agreement last week that allows Tesla to keep its five stores in the state, but not to add future stores.

You can reach Andrew Thurlow at athurlow@crain.com

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