Brent Snavely and Frank Witsil, Detroit Free Press
Tesla, unlike other automakers, sells its cars directly to consumers through company-owned stores in other states.
Electric automaker Tesla filed a lawsuit today against state officials, escalating its multi-year battle to sell vehicles directly to consumers in Michigan.
The California automaker named Michigan Secretary of State Ruth Johnson, Michigan Attorney General Bill Schuette and Gov. Rick Snyder in its lawsuit filed in in federal court. A spokesman for the governor declined to comment and a spokeswoman for Schuette said his office is reviewing the lawsuit.
Tesla's action is part of an escalating conflict that is playing out nationwide — through legislatures, regulatory agencies and the courts — between the upstart Palo Alto, Calif.-based automaker and powerful dealers associations as states try to sort out whether, and to what extent, Tesla should be allowed to sell directly to customers.
It also highlights two different interpretations of what a free market means.
The lawsuit was filed less than a week after Johnson rejected Tesla's application for dealership and service facilities in Grand Rapids. The license was denied because a state law in 2014 requires a dealer to have a bona fide contract with an auto manufacturer to sell its vehicles.
Nationwide, various states have taken different approaches to Tesla’s efforts to set up customer-direct retail centers, with some states seeking to ban the practice entirely, some allowing exceptions with restrictions, and others not objecting to the practice at all.
For Tesla, the stakes to have more of its own showrooms may be heightening, as the manufacturer aims to launch a new model priced at $30,000 — much lower than its predecessors and more appealing to a mass market. The company has received about 400,000 deposits of $1,000 each from consumers who want the new model.
Tesla's lawsuit takes aim at the heart of the dealership sales model, alleging it amounts to a state-sponsored monopoly.
"Tesla Motors brings this lawsuit to vindicate its rights under the United States Constitution to sell and service its critically-acclaimed, all-electric vehicles at Tesla owned facilities in the State of Michigan," the automaker said in its complaint.
Tesla submitted an application for a dealership license in the fall of 2015 with a plan to open a retail gallery in Grand Rapids. In a Sept. 7 hearing, a panel of administrative law examiners led by Jay Thomas Todd heard arguments. Last Thursday, they rejected the license request for Tesla.
"The license was denied because state law explicitly requires a dealer to have a bona fide contract with an auto manufacturer to sell its vehicles," Michigan Secretary of State Ruth Johnson said in a news release.
Tesla wants to sell its high-end battery-powered cars directly to consumers without a franchised dealer, much like Apple sells its products.
Tesla’s Model S and Model X are priced between $75,000 and $115,000, but late next year Tesla intends to launch a new Model 3 that will be priced about $30,000 after federal tax credits. The automaker has said 373,000 customers have paid to reserve Model 3 cars.
The automaker's lawsuit asks a federal judge to declare that the state and the state's laws violate the due process and equal protection clauses of the Fourteenth Amendment to the U.S. Constitution and the Constitution’s commerce clause.
"Particularly egregious protectionist legislation was passed by the Michigan Legislature in 2014," Tesla says in its complaint. "The Michigan Legislature quietly enacted an outright ban on Tesla’s direct-to-consumer sales model, effectively giving franchised dealers a state-sponsored monopoly on car sales within Michigan."
Some lawmakers seek to change the legislation.
House Bill 5312 — offered this year by state Rep. Aaron Miller, R-Sturgis — would lift the direct-sales restriction on Tesla.
"Solving this legislatively always has been and continues to be Tesla’s preferred option," the company said in a statement. "For the last two years, Tesla has pursued legislation in Michigan that is fair to everyone and that would benefit Michigan consumers."
Jarrett Skorup, a policy analyst with the free-market think tank Mackinac Center for Public Policy that supports changing the law, said that people should be able to freely sell goods, and supports Tesla’s position that it should be able to sell vehicles in Michigan without interference from dealerships.
Moreover, groups like the Michigan Freedom to Buy Coalition, which was formed earlier this year, have been seeking to raise awareness about this issue, and encourage support for efforts from consumers to allow Tesla to bypass dealer franchise laws.
However, the Michigan Automobile Dealers Association, which represents dealers statewide, counters that dealerships benefit consumers.
"For consumers, new-car franchises create intra-brand competition that lowers prices; generate extra accountability for consumers in warranty and safety recall situations, and provide enormous local economic benefits, from well-paying jobs to billions in local taxes," the National Automobile Dealers Association has said.
The dealers argue that the system is the most efficient and effective way to distribute and sell automobiles nationwide because independent dealers are more motivated to invest in their dealerships and are effective than manufacturers in selling cars.
Tesla, in contrast, argues that its model for selling cars is better than the high-pressure sales environment found at traditional auto dealerships where sales people make money based on commission.
"Because Tesla is new to the industry and because all-electric vehicles are new to most customers," Tesla said in its complaint. "Tesla’s sales model has focused on educating consumers about its products and technology in a low-key, low-pressure environment."
Tesla operates nearly 100 stores in 23 states and the District of Columbia.
To buy a new Tesla now, Michiganders must go to Chicago, Cleveland, Columbus, Cincinnati or Indianapolis, where the automaker operates its galleries.