Editor's note: Michigan's 2014 franchise legislation was supported by the Michigan Automobile Dealers Association. A previous version of this story misstated which dealers' association supported the measure.
The Michigan Secretary of State upheld a decision to deny a dealer license to Tesla Motors, the state office said on Thursday.
The ruling was released after a Sept. 7 hearing to review the state’s initial motion to deny the automaker’s request for a license, submitted in November 2015. The application -- which if approved, would allow the automaker to sell electric vehicles in storefronts in the state -- was denied on the basis of Tesla’s direct-sales model.
According to state law, “a vehicle manufacturer shall not … sell any new motor vehicle directly to a retail customer other than through franchised dealers.”
Despite the setback in Michigan, Tesla got some good news in Arizona. On Thursday, the Arizona Department of Transportation officially granted the automaker a license to sell direct to consumers. The move was the result of a July 29, 2016, ruling by an Arizona judge who found that the Arizona DOT had wrongfully denied Tesla Motors a new motor vehicle license in May. Tesla will be able to sell vehicles through its existing gallery in Scottsdale, effective immediately, and it has more sites at undisclosed locations in the works.
Michigan’s dealership franchise statute has been in effect since 1981. In 2014, Gov. Rick Snyder signed a bill that closed a loophole in the existing law that effectively barred Tesla’s sales model in the state.
The 2014 bill was initiated by the Michigan Automobile Dealers Association and supported by General Motors and Ford Motor Co.
Tesla’s effort to sell directly to consumers has been encumbered by similar legislation in states such as Texas and Iowa, which have banned the sale of its vehicles. Texas does have gallery locations, where the vehicles can be displayed but not sold.
Customers may buy cars via the company’s website. Despite the legal challenges, the automaker has not indicated that it plans to change its direct-sales approach.
“Tesla sells its cars directly to consumers all over the world, and seeks to do the same in Michigan,” the company wrote in its correspondence with the Secretary of State. “Tesla has never sold its cars through an independent, franchised dealer.”
Tesla responded with this statement: "At the urging of local car dealers and GM, Michigan law was changed two years ago to prevent Michigan consumers from buying cars from a Tesla store within the state. As part of the process of challenging the legality of that law, Tesla applied for a license in Michigan. Tesla will continue to take steps to defend the rights of Michigan consumers."
Michigan, home to the Detroit 3, is the most populated state without a Tesla store or gallery.
The automaker may end up mounting a federal case against states where its direct-sales model has been banned, according to The Wall Street Journal.
“It is widely accepted that laws that have a protectionist motivation or effect are not proper,” Tesla chief counsel Todd Maron told The Journal in March.
David Undercoffler contributed to this report.