In a Blow to Car Dealers, Court Affirms Tesla’s Right to Operate Company-Owned Stores

A lawsuit brought by Massachusetts auto dealers against Tesla Motors seeking to prevent the company from selling its electric vehicles in company-owned retail stores has been dismissed.

The suit, brought by the Massachusetts State Automobile Dealers Association (MSADA) in Norfolk County Superior Court, alleged that Tesla was violating state franchise laws by opening a company-owned store in Natick, Mass., last September. Judge Kenneth Fishman dismissed the case based on the auto dealers’ lack of standing and failure to state a claim.

“We are delighted by the outright dismissal of this case and the validation that we are operating our business in compliance with the laws and expectations of the Commonwealth of Massachusetts,” said Elon Musk, Tesla co-founder and CEO.

The suit is the latest in a series of legal challenges brought against Tesla for pursuing an unusual company-owned store model "to accelerate the adoption of electric vehicle technology." Car dealers in New York, Massachusetts, Illinois and Oregon have sued the company for opening company-owned stores that compete with dealerships, which they say is illegal.

“They claim they’re operating under the guise of a non-sales showroom, and we call that out as an outright scam,” Robert O’Koniewski, executive vice president of MSADA, told AutoNews. "If you read the statute, it’s pretty clear: a factory cannot own a store, and a dealer can sue for injunctive relief if they feel the public is being harmed.”

But Tesla claims that its stores, usually located in malls, are designed to educate consumers about the benefits of driving electric vehicles. George Blankenship, a veteran Apple marketer hired by Tesla in July 2010 to build the company's retail strategy and network, said Tesla has studiously complied with state statutes regarding car dealerships.

"We do what we’re capable of doing, and we do whatever they let us do," Blankenship told AutoNews. "It’s unique for each location. If we can’t be a dealer in a mall, we won’t do reservations on-site. We tell people where to go on our website to make a reservation."

Car dealers have successfully prevented Ford and General Motors from opening factory-owned stores in the past, so Tesla will have to tread carefully as it pursues its company-owned model. Still, Musk said Tesla is "confident that other states will also come to this same conclusion" as Massachusetts.

Tesla has over 20 showrooms in North America and over 30 worldwide. The company is also building a network of fast charging stations, called Superchargers, to allow Model S drivers to recharge their vehicles for free on long distance trips. Musk told the New York Times last November that Tesla expects its Supercharger network to cover the entire United States by the end of 2013.

Tesla and its Model S have had a successful year by many metrics. Tesla’s stock price has jumped over 44 percent since this time last year, and the Model S, which the company introduced in the United States in June 2012, was named 2013 car of the year by Motor Trend, Automobile Magazine and Yahoo! Autos.

“Our aspiration with the Model S was to show that an electric car truly can be better than any gasoline car, which is a critical step towards the widespread adoption of sustainable transport,” Musk said upon receiving the Motor Trend recognition. Musk says Tesla’s ambition is to build a great car, not just a great electric car.

Nevertheless, the Model S retails for over $50,000, rendering it prohibitively expensive for most motorists. Tesla has sold just over 250 Model S sedans thus far, which is an almost microscopic drop in the bucket compared with the 404,886 Toyota Camrys sold in 2012, for example.

Musk insists, however, that Tesla is making its technology more affordable, and the company plans to release a $30,000 model in coming years. The “absolute goal of Tesla from the beginning has been to provide a car that you can afford,” said Musk. “There is no effort spared to try to get there as soon as humanly possible.”

[Image credit: pacecharging, Flickr] [Image credit: David Shankbone, Flickr]