The California-based luxury electric car manufacturer Tesla has been denied a dealership license in Michigan by the Secretary of State.
Michigan law requires manufacturers to have a contract with a dealer in order to sell vehicles and since Tesla doesn’t have an independent dealer it plans to use, the license was denied, according to Secretary of State spokesperson, Gisgie Gendreau.
Tesla’s direct-sales business model allows it to sell in other states, but not Michigan, which requires a business separation between manufacturer and dealer.
The order was issued last Monday by Administrative Law Examiner Jay Thomas Todd and sets the table for a legal challenge if Tesla wants to challenge Michigan’s law in court as it’s done in other states, such as Massachusetts, Georgia and Missouri.
Tesla’s legal counsel claimed during the hearing that the denial amounted to equal protection and due process violations of the Fourteenth Amendment to the U.S. Constitution. It also claimed a U.S. Commerce Clause issue. Todd wrote that such issues are not typically decided upon at the administrative hearing level.
MIRS reported in January that page 45 of Tesla’s latest quarterly filing with the U.S. Securities and Exchange Commission stated that it is “evaluating legislative and litigation solutions to remedy the situation in Michigan.”
Rep. Aaron Miller (R-Sturgis) is introducing legislation that would allow an auto manufacturer to sell their vehicles directly to customers as long as they are 10 miles away from an existing auto dealership, a bill written to open the door for Tesla to sell their vehicles using their direct-sales business model.
The two-pronged effort comes as Tesla’s Will Nicholas and multi-client lobbyists from Michigan Legislative Consultants and Midwest Strategy Group of Michigan work with lawmakers on changing state law to allow for manufacturer-to-consumer vehicle sales.
From the company’s standpoint, the direct sales model is the equivalent of banning Apple from opening up their own stores to sell iPhones, instead requiring they be sold through retailers like Walmart and Best Buy.
All the while, the Michigan Auto Dealers is individually visiting members with a simple pitch — It’s not that hard to sell cars in Michigan. Based on the application of the Secretary of State, Tesla can contract with anyone to sell its cars . . . except itself.
If Tesla wants to send a former employee to Michigan to open up a Tesla dealership with a franchise agreement in which it mandates the dealership look, act and do business exactly as the Tesla-run stores, it can do it.
A dealership needs to get local approvals and the necessary insurance, but the argument is that if Jaguar can sell 252 cars in Michigan in 2015, Tesla can compete, too. According to the Dominion Cross-Sell Report, Tesla sold 182 in 2014 in Michigan on out-of-state and internet sales alone the auto dealers claim.