States like Missouri and Michigan that ban Tesla’s direct-to-consumer sales model should be ashamed of their anti-innovation policies.

My wife and I bought a new car last week. We love the car itself (thanks Volkswagen) but holy cow the buying process was a complete disaster. The dealers used shady practices, offered confusing “special deals,” sold a car they “reserved” for us to someone else by “mistake,” refused to communicate via email, and even pretended to block an exit door when we were leaving saying “you can’t leave if you don’t buy a car.”

The entire time I was thinking “I wish I could just buy a Tesla.” (Unfortunately, that’s not an option right now because we have two kids under two, and oh yea, they are currently expensive…)

Tesla’s direct-to-consumer sales process and uniform and transparent pricing are incredibly consumer friendly. Yet some states (Missouri included) think it wise to ban Tesla’s sales model and Tesla repair facilities.

Thankfully Tesla is fighting back.

And I predict they will continue fighting in Missouri as well.

“Tesla v. Michigan”

Tesla is suing Michigan on several grounds, and I hope they win on all of them. You can read a summary of their three claims below. (Much of this is copied directly from their petition, which you can read here.)

14th Amendment Due Process

“The Due Process Clause… protects every person’s right to pursue legitimate business interests subject only to regulations that are rationally related to a legitimate government purpose.

Prohibiting a non-franchising manufacturer, like Tesla, from selling or servicing cars in Michigan is not a rational means of achieving any legitimate government purpose. Such a manufacturer cannot have any competitive advantage or market power over its non-existent dealers, and excluding it from the marketplace thwarts competition, increases prices, and deprives consumers of products that they want. ”

14th Amendment Equal Protection

“The Equal Protection Clause… prohibits the State of Michigan from making arbitrary and unreasonable classifications. A state violates the Equal Protection Clause when it treats one set of persons differently from others who are similarly situated and there is no rational basis for the differential treatment.

By prohibiting Tesla from selling and servicing Tesla cars in Michigan, [Michigan is] distinguishing without legitimate justification between (a) manufacturer-owned dealerships, such as Tesla, and (b) franchised dealerships that are not owned by manufacturers, which are similarly situated in all material respects. [Michigan is] also distinguishing without legitimate justification between (a) non-Michigan-based manufacturers like Tesla, which do not use franchised dealerships as part of their sales model, and (b) Michigan-based manufacturers like General Motors, which do. These irrational classifications do not further any legitimate government interest…”

The Dormant Commerce Clause

“The Constitution empowers Congress ‘to regulate Commerce… among the several States…’ The Commerce Clause also has a negative aspect, referred to as the dormant Commerce Clause, which restricts state and local governments from impeding the free flow of goods from one state to another [and] prevents states from promulgating protectionist policies, i.e., regulatory measures aimed to protect in-state economic interests by burdening out-of-state competitors….

Prohibiting Tesla from selling and servicing cars in Michigan except through independent franchised dealers impermissibly discriminates against interstate commerce by impeding the flow of out-of-state-manufactured vehicles into Michigan and by favoring in-state interests (Michigan franchised dealers and Michigan-based vehicle manufacturers) over out-of-state interests (Tesla). Prohibiting a non-franchising manufacturer from selling or servicing cars in Michigan does not advance any legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.”

What Michigan (and Missouri) Should Do

It’s simple – enact legislation that allows Tesla to sell and service cars using its modern business model. That will force the incumbent businesses to innovate. And the result is a victory for  consumers.

Free ebooks


*This article is very general in nature and does not constitute legal advice.