Tesla Inc. has reached a settlement with the state of Michigan over its federal lawsuit challenging a state ban on direct-to-consumer car sales, according to people familiar with the matter.
In a partial victory for Tesla, the accord clears the way for the electric vehicle maker to open service centers in the state through a subsidiary, said one of the people, who asked not to be identified ahead of a filing in U.S. District Court that’s expected as soon as Wednesday. Customers will still have to title their cars in another state and transfer them to Michigan.
The Michigan attorney general’s office had no immediate comment. Tesla representatives didn’t respond to requests for comment.
Tesla, which sells its electric cars directly to consumers in roughly two dozen states, filed suit against Michigan in 2016 seeking to overturn its ban on auto manufacturers selling directly to consumers. The suit claimed a bill signed into law by then-Gov. Rick Snyder in 2014 was an “anti-Tesla” amendment designed to favor the state’s automakers and franchise dealers.
Instead of operating a network of franchised dealerships with hundreds of vehicles on the lot, Tesla’s strategy has been to open small stores in shopping malls and other visible locations with lots of foot traffic. General Motors, Ford Motor Co., Fiat Chrysler Automobiles and other automakers operate under franchise laws that have been on the books for decades and were originally put in place to prevent manufacturers from opening stores that would compete with dealers.
Key to sales
Tesla has operated a gallery -- where it showcases vehicles but cannot sell them -- at a high-end mall in the Detroit suburb of Troy, Mich., since 2017. Tesla owners in the state currently have to travel to Cleveland or Columbus, Ohio, to have their vehicles serviced.
Tesla CEO Elon Musk said in July that service centers are key to growing sales.
“You’ve got to have service, you have to have the supercharging and charging all sorted out, good consumer financing, and then the price must makes sense,” Musk said on an earnings call. “Any place where those four things are true, our sales are great. So we’re rolling out service centers like crazy.”
In March, Tesla reversed a controversial plan to close most of its stores, but said that shoppers who visit its retail locations will be shown how to order a car on their phone in minutes. Its stores have played a critical role in educating consumers about making the switch to electric and in arranging test drives.
In the 2016 lawsuit, Tesla said it was being stymied by automakers and dealers in Michigan. It’s been waging similar battles in Texas and Connecticut for a license to sell directly to consumers, arguing that it doesn’t violate dealers’ rights because the company doesn’t have any dealers.
In 2016, Diarmuid O’Connell, then Tesla’s vice president of business development, accused GM of pushing legislation that would keep its direct-sales model banned in Indiana. Tesla now has two stores and one service center in the state, according to its website.