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Mass. High Court: Tesla Can Sell Cars Directly to Consumers

Ever wonder why you can't buy a car directly from the manufacturer? Tesla has. In trying to sell directly to consumers, the California-based manufacturer of sexy (and expensive) electric cars has run up against legal obstacles in the form of state laws prohibiting direct-to-consumer sales of cars.

Such laws were originally meant to protect dealerships from manufacturers, but over the years, they've become more of a way to limit entry into the business of automobile sales. Tesla finally won a small victory in Massachusetts earlier this week when the commonwealth's Supreme Judicial Court (SJC) ruled that unaffiliated auto dealers don't have standing to challenge the law.

Unfair Competition?

The Massachusetts Automobile Dealers Association (MSADA) represents automobile dealerships throughout the state; other plaintiffs included two other auto dealerships that have no affiliation with Tesla. They claimed Tesla was operating an illegal auto dealership. Tesla said only that the law plainly didn't apply to them.

The statute at issue, General Laws c. 93B, was enacted in 1970 to protect auto dealerships from heavy-handed or unfair practices by manufacturers, who (it was assumed) were in a superior bargaining position and could make demands of dealerships as they liked. The law was replaced in 2002 with a new version containing largely the same stuff, but also a provision making it illegal for an auto manufacturer to operate a dealership that sells the same cars the manufacturer produces. So, Toyota can't open a Toyota dealership.

The plaintiffs here claimed that the law was much broader, allowing any dealer injured by any violation of the law to bring a claim, and preventing any manufacturer from operating any dealership. The court disagreed. The law, it said, applies only to manufacturers that had affiliated dealerships operating "pursuant to a franchise agreement." Tesla has never operated a "traditional" dealership. If Tesla were operating a dealership, it would own it outright; there'd be no franchise agreement.

That's Not What That's For

Looking to the legislative intent, which is required in a case like this, it's clear that the legislature intended the law to protect franchisees from their own manufacturers' encroachment on them. This interpretation was supported not only by prior case law -- notably Beard Motors v. Toyota Motor Distributors, a 1985 case interpreting the 1970 statute -- but also white papers authored by MSADA before passage of the 2002 amendment. Beard involved a dealership whose manufacturer and distributor refused to allow it to be sold to another dealership. The SJC said that such an action wasn't allowed by the law; manufacturers don't get to make dealerships' business decisions.

This, however, was an electric car of a different color. Tesla has never had a traditional dealership in Massachusetts, and as a result, the law doesn't apply to them. Good news, Martha's Vineyard! Electric cars for everybody!

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