Connecticut Bill Would Pave The Way For Tesla Direct-To-Consumer Sales

By: Peter I. Brostowin

Tesla, the electric automotive company, was recently accused of illegal sales by the Connecticut Automotive Retailers Association.[1] Unlike competitor manufacturers, the automaker’s business model does not include operation of a conventional independent dealership, a move that has been criticized.[2] As a result, Tesla has undergone multiple legal challenges to this date.[3] The problem arises from a handful of states that prohibit such sales and place stringent requirements upon the manufacturers to contract with the state dealerships.[4] Most frequently, the legislation that Tesla has to overcome is the result of manufacturer and dealership association lobbying.[5] As demonstrative of the time Tesla has spent competing to expand its reach, as early as 2015 the Federal Trade Commission expressed a desire for legislators to ease restrictions and allow consumers to determine competition.[6]

The newest battle, coming from a recent legal victory in Indiana[7], is occurring in Connecticut and legislators are giving hope to the electric automotive manufacturer. Despite being unable to convince the legislature to allow direct sales for the past three years,[8] Tesla is backing a bill introduced in mid-February that would open the doors and allow direct-to-consumer sales.[9] Today, Tesla operates a “gallery” in Greenwich that allows potential consumers to come and learn about the vehicles the manufacturer offers.[10] The automaker is unable to sell any vehicles from the Greenwich location, but rather refers individuals to other out-of-state locations.[11] With the introduction of the new Bill in the Connecticut legislature, Tesla was offered an opportunity to speak before the Connecticut Transportation Committee at a hearing on February 17, 2017.[12] There, the automaker put a number on the economic benefit Connecticut stands to lose by continuing the prohibition of sales, saying that “thousands” of Connecticut residents have reservations to purchase the Tesla Model 3.[13] Tesla’s Deputy General Counsel argued that consumers would simply go across state lines to Massachusetts or New York to fulfill their reservations if the prohibition of direct-to-consumer sales persists.[14]

Introduced by the Transportation Committee, the Bill, H.B.-7097, concerns the licensing of new and used car dealers. As introduced, the sponsor indicates that the purpose of the legislation would be “to authorize the Commissioner of Motor Vehicles to issue a new or used car dealer’s license to an electric vehicle manufacturer.”[15] To an extent, the legislation might as well refer to Tesla by name, given the lack of competition in the electric automotive market. While other electric cars are manufactured, they are done so by companies operating under the traditional model of dealerships and therefore do not face the same roadblock as Tesla. The Bill, in its current form, would expand the power of the Commissioner of Motor Vehicles of Connecticut to provide a dealership license to individuals, firms or corporations. The Tesla-specific provision would enable the Commissioner to issue manufacturers a dealership license provided (a) the manufacturer has no franchise agreements with any new car dealer in the state; (b) it manufactures electric cars; (c) only sells cars produced by the manufacturer; and (d) owns no controlling interest in a separate manufacturer. As Tesla meets the necessary criteria of the Bill, the electric automaker is poised to arrive on the lot provided the legislature enacts soon. Until such time, the Greenwich gallery will remain just that.

[1] Fred Lambert, Tesla is ‘Illegally Selling Cars’ in Connecticut, says Dealership Association as They Try to Stop Direct-Sale Bill, Electrek (Feb. 20, 2017), https://electrek.co/2017/02/20/tesla-illegally-selling-cars-connecticut-dealership-association/.

[2] Amy Wilson, Dealers Call Tesla Factory Stores Illegal, Automotive News (Oct. 8, 2012), https://www.autonews.com/apps/pbcs.dll/article?AID=/20121008/RETAIL07/310089952/dealers-call-tesla-factory-stores-illegal.

[3] Fred Lambert, Tesla Escapes Ban in Indiana by being ‘Grandfathered in’, but the State Moves Forward With Ban on Direct Sales, Electrek (Feb. 2, 2017) https://electrek.co/2017/02/02/tesla-indiana-grandfathered-in-ban/; Brent Snavely, Tesla Sues Michigan over Sales Ban, USAToday (Sep. 22, 2016), https://www.usatoday.com/story/money/cars/2016/09/22/tesla-sues-michigan-over-sales-ban/90839960/.

[4] See Ala. Code 1975 § 8-20-4 (listing what constitutes “Unfair and Deceptive Trade Practices” in the context of Motor Vehicle Manufacturers); Vince Bond Jr., Tesla’s Sales Limits in Michigan Tightened by One Word of Law, Automotive News (Oct. 20, 2014), https://www.autonews.com/article/20141020/RETAIL/141029995/teslas-sales-limits-in-michigan-tightened-by-one-word-of-law; Hunter Walker, Tesla Goes to War Against Chris Christie, BusinessInsider (Mar. 11, 2014), https://www.businessinsider.com/tesla-motors-vs-chris-christie-2014-3; Richard Read, Tesla Wins in Georgia, Loses in West Virginia, CarConnection (Mar. 27, 2015), https://www.thecarconnection.com/news/1097489_tesla-wins-in-georgia-loses-in-west-virginia; Lisa Brown, Tesla’ License to Sell Cars in Missouri Expiring, St. Louis Post-Dispatch (Dec. 29, 2016), https://www.stltoday.com/business/local/tesla-s-license-to-sell-cars-in-missouri-expiring/article_b4f52be1-3df6-59ba-9455-73a9657ad865.html

[5] Kristen Korosec, These Car Dealers Really, Really Hate Tesla, Fortune (Nov. 28, 2016), https://fortune.com/2016/11/28/these-car-dealers-really-really-hate-tesla/; Jeff Cobb, GM Has Lobbied Against Tesla’ Direct Sales Model in At Least Five States, hybridCARS (Feb. 29, 2016), https://www.hybridcars.com/gm-has-lobbied-against-teslas-direct-sales-model-in-at-least-five-states/.

[6] Marina Lao et. al, Direct-to-Consumer Auto Sales: It’s Not Just About Tesla, Fed. Trade Comm’n (May 11, 2015), https://www.ftc.gov/news-events/blogs/competition-matters/2015/05/direct-consumer-auto-sales-its-not-just-about-tesla.

[7] Fred Lambert, Tesla Escapes Ban in Indiana by being ‘Grandfathered in’, but the State Moves Forward With Ban on Direct Sales, Electrek (Feb. 2, 2017) https://electrek.co/2017/02/02/tesla-indiana-grandfathered-in-ban/

[8] Fred Lambert, Tesla is ‘Illegally Selling Cars’ in Connecticut, says Dealership Association as They Try to Stop Direct-Sale Bill, Electrek, (Feb. 20, 2017), https://electrek.co/2017/02/20/tesla-illegally-selling-cars-connecticut-dealership-association/.

[9] https://www.cga.ct.gov/2017/TOB/h/2017HB-07097-R00-HB.htm

[10] Fred Lambert, Tesla Is Going Forward with A Gallery In Connecticut While Direct Sales Bill Is Pending, Electrek (Mar. 28, 2016), https://electrek.co/2016/03/28/tesla-gallery-connecticut/

[11] Id.

[12] Fred Lambert, Tesla Warns that ‘Thousands’ of Model 3 Reservations Holders Will Go Outside of Connecticut to Buy Without Direct Sales, Electrek (Feb. 23, 2016), https://electrek.co/2017/02/23/tesla-model-3-reservations-holders-connecticut/.

[13] Id.

[14] Id.

[15] H.B. 7097 (Introduced Feb. 16, 2017).