Tesla Motors Inc Direct Sale Model Under Attack In Missouri

Tesla Motors Inc Direct Sale Model Under Attack In Missouri
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Tesla Motors Inc (NASDAQ:TSLA)’s policy of selling directly to consumers through its own retail outlets is under attack yet again, this by a last minute amendment to a bill working its way through the Missouri legislature that would ban the direct auto sales model. ‘

“This change is not an innocent, minor amendment. It is completely unrelated to the original bill, which was about laws regarding all-terrain vehicles, recreational off-highway vehicles, and utility vehicles,” the company wrote in a blog post. “This extraordinary maneuver amounts to a sneak attack to thwart due process and hurt consumer freedom in Missouri.”

The original form of the law, which wouldn’t have impacted Tesla Motors Inc (NASDAQ:TSLA)’s sales model, was passed in the Missouri House on April 17 after months of debate, but the new version with language that would prevent direct selling was quietly passed in the Senate last night and will now be sent back to the House for a final vote.

Manufacturers barred from competing with their franchisees in many states

Many states, including Missouri, have statutes that prevent manufacturers from competing with their own franchisees, so General Motors Company (NYSE:GM) can’t sell cars to consumers if it is also selling cars to dealerships. Since car manufacturers have preferred to just deal with dealerships in the past, these laws effectively barred them from opening their own shops.

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But Tesla Motors Inc (NASDAQ:TSLA) isn’t interested in selling through a middleman. Tesla CEO Elon Musk has said that he never wants servicing to be a major profit center for the company because there should be an incentive for the product to break down, though wanting to control costs all the way to the end user is probably also a major factor.

Tesla’s sales model under attack in many states

Either way, the direct sales model took many dealer associations by surprise, and even if they aren’t worried about Tesla Motors Inc (NASDAQ:TSLA) specifically they don’t want other car manufacturers following suit. After a lot of wrangling, legislation in Washington state that would have prohibited direct sales now only applies to manufacturers who already use franchises. In Ohio, Tesla is limited to three stores, one each in Columbus, Cincinnati, and Cleveland, but at least can stay open, and while New Jersey currently bans direct auto sales there is legislation in the works that might let it get back to business.

If it wasn’t clear already, Tesla Motors Inc (NASDAQ:TSLA) will have to defend its business model on a state-by-state basis; no doubt dealerships across the country are watching how these fights play out.

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