Tesla Operating Illegal Stores, Really?

Tesla Operating Illegal Stores, Really?

Tesla Accused Of Operating Illegal Showrooms In 4 States
October 10, 2012 | 3 commentsby: TheCarConnection | about: TSLA By Richard Read

Given today's high gas prices, many car shoppers are turning their attention to hybrids and other fuel-efficient vehicles. Electric cars like those built by Tesla (TSLA) could be attractive to better-off buyers, but Tesla is facing some legal problems that may slow the selling process.

Automotive News reports that dealer networks and government regulators across the U.S. have begun to question Tesla's sales techniques. And in several cases, they've threatened legal action to stop the startup.

A New Paradigm for Auto Sales

According to the National Automobile Dealers Association, 48 states have franchise laws that forbid or restrict the ability of automakers to sell vehicles directly to the public. That's why dealerships tend to be independently owned and operated. Tesla showrooms, on the other hand, are owned by Tesla itself.

However, Tesla says that the majority of its showrooms -- designed by George Blankenship, the man behind Apple's outrageously successful chain of retail shops -- don't actually conduct sales; they simply share information about Tesla vehicles. When it's time to seal the deal, Tesla staff point prospective shoppers to the automaker's website, where they can customize and reserve their vehicle.

Other dealers aren't buying it. They insist that even though Tesla's showroom staff don't technically sell vehicles on site, they do everything else that a traditional dealership would do. In short, they argue that by facilitating the sales process, Tesla showrooms are essentially conducting sales.

To date, questions about the legality of Tesla showrooms have arisen in four states: Illinois, Massachusetts, New York, and Oregon. Because franchise laws vary from state to state, each case is a bit different. Some complaints have been brought by dealer associations, and in Illinois the challenge was lodged by the Secretary of State. Tesla says that it is doing everything it can to comply with each state's regulations.

Tesla currently maintains 17 showrooms in 10 states and the District of Columbia, but it's set to open another six this fall. As Tesla expands operations and its reputation grows, we'd expect to see many more challenges to its business model down the line.

Will Tesla eventually shift to a conventional model of independently owned dealerships? Or will it bring about a change in the way that state laws are written, laws generally written decades ago when there was far less competition in the marketplace and states wanted to put big automakers on more equal footing with smaller ones?

And more importantly, will Tesla's unusual sales paradigm -- which has recently been copied, in part, by Audi -- change the way that automakers interact with customers?

cablechewer | October 11, 2012

aaronw2 - I would never have accepted that. I went through a similar process with acquiring my Golf TDI back in 2000. The dealer tried to sell me other cars. One had a sunroof and better wheels. I told them I would happily take it at the price we agreed to previously, but they wanted $1600 more from me.

Then they tried to get me into a couple of cars in different colours. I told them that was fine as long as they repainted them as part of the delivery (and without adding to the price).

Eventually they agreed to order the car from Germany and I got it about 5 months later. The only problem at that point was that they wanted to renegotiate the trade-in price for my old car. After one rather frosty conversation they reluctantly agreed to accept my trade-in at the originally agreed upon price.

Now my only ongoing problem with the dealer is that they rarely respect my parts discount. They are supposed to give me a 10% discount on parts because I bought the car from them 12 years ago. They frequently neglect to include it on their invoices and I have to ask them to reprint the invoice with the discount (they never specified a time limit on how many years the discount applied).

All that being said - I really hope Tesla's model delivers a better experience. So far things have been great with Tesla's approach. If the service after I complete my purchase is as good as the sales experience I will never want to deal with a regular dealer again. Hopefully protectionist type laws like these don't kill the model. As a Canadian who sees so much in the US press about people not wanting the government to pick winners and losers it is ironic that there are so many laws that seem designed to do that.

jameslindag | October 14, 2012

So BIG OIL is shaking in there boots and I wouldn't have to deal with a pushy,stinky, non-English speaking sales man that generally know less about the vehicle then you do by researching on the web pages anyhow ? I think I might add this to my favorites along with shopping online with Amazon . Good Lord why would anybody , in there right mind , be afraid of innovation especially when we need to all get away from oil all together . I cant wait for a car in the 30k range I can order on the net . Good job Tesla keep up the pressure and the innovative ideas . I advertise for you all almost daily by word of mouth.Nikola and you rule.

BYT | October 14, 2012

I am just waiting for the BS propaganda machine to come back with the numbers of car salesman jobs lost due to this change?

Ron5 | October 14, 2012

The big 3 were getting destroyed by foreign cars, so they used protectionist laws and the emotions of patriotic people to fight back. It's really sad that they are quietly filing suit against an American car maker, since their same old tactics won't work....

sxt173 | October 16, 2012

@BrianMRolfe, I don't think Tesla should ever go the route of a dealership. They are keeping their costs low and their branding on target by owning their showrooms and allowing people to buy only / get deliveries at home.
No real need to get to a point where they are stocking inventory at stores. Same applies to those arguing Tesla will at some point move to a independent franchise dealership structure. The only real reason to do so is that car companies basically move their inventory costs to a 3rd party. Once Tesla manufacturing catches up to demand, they will be in a unique position to actually do successful "just In Time" manufacturing with a 1-2 week delivery window.

mrspaghetti | October 16, 2012


I'd think they'd be successful with even a 3 month time frame from order to delivery.

Brian H | October 16, 2012

Yes, they want that much lead time, and JIT manufacturing is exquisitely sensitive to hiccups or failures on any of its feed lines.

andrew.desalvo | November 7, 2012

United States v. General Motors Corp., 384 U.S. 127 (1966) the litigation pertaining to civil action to enjoin General Motors Corporation (GM) and three associations of Chevrolet dealers in the Los Angeles area from participating in an alleged conspiracy to restrain in violation of § 1 of the Sherman Act by eliminating sales of new Chevrolets through "discount houses" and "referral services."

Held: this is a classic conspiracy in restraint of trade: joint, collaborative action by dealers, associations, and GM to eliminate a class of competitors by terminating dealings between them and a minority of Chevrolet dealers and to deprive franchised dealers of their freedom to deal through discounters if they so choose. Pp. 384 U. S. 138-148.

Retrieved on November 2, 2012 via the Internet at URL:

DouglasR | November 7, 2012


I don't think that case applies. A conspiracy implies at least two parties (the dealers' association and the manufacturer), whereas in the case of Tesla, the dealers' association is acting alone. Moreover, actions to influence government (such as enforcing statutes in court or lobbying the legislature) are protected activities under the antitrust laws.

andrew.desalvo | December 21, 2012

For Release: November 2, 2006
FTC Issues Staff Report on Enforcement Perspectives on
Noerr-Pennington Doctrine

The Federal Trade Commission today released a staff report by its Office of Policy Planning and Bureau of Competition that provides enforcement perspectives on the Noerr-Pennington doctrine, which precludes enforcement of the antitrust laws against certain private acts that urge government action.

“When properly applied, the Noerr doctrine serves important purposes in our representative democracy,” said Maureen Ohlhausen, Director of the FTC’s Office of Policy Planning. “Unnecessarily broad interpretations of the doctrine, however, can protect abuses of government processes and impose significant costs on consumers.”

The report provides the staff’s views on how best to apply the Noerr doctrine to conduct that imposes great risk to competition but does not further the First Amendment and government decision-making principles that underlie the doctrine. The views presented are based on recent FTC enforcement experience and the staff’s assessment of the type of issues that the Commission is likely to encounter in the future.

andrew.desalvo | December 21, 2012


(b) In determining whether there has been a conspiracy or combination under § 1 of the Sherman Act, it is of no consequence that each party acted in its own lawful interest or whether the franchise system is lawful or economically desirable. P. 384 U. S. 142.

(c) Even if it were assumed that there had been no explicit agreement among the appellees and their alleged co-conspirators, such an agreement is not a necessary part of a Sherman Act conspiracy -- certainly not where, as here, joint and collaborative action was pervasive in the initiation, execution, and fulfillment of the plan. United States v. Parke, Davis & Co., 362 U. S. 29, 362 U. S. 43. Pp. 384 U. S. 142-143.

(d) The joint and interrelated activities of GM and the co-conspirators in obtaining the agreements not to deal with discounters and in policing such agreements cannot be described as "unilateral" or merely "parallel." Pp. 384 U. S. 144-145.

Retrieved on December 21, 2012 via the Internet at URL:

andrew.desalvo | December 21, 2012

Tesla executive Elon Musk thinks Obama win will mean more electric cars, would back $10K tax credit plan

With President Obama in office for another four years, Tesla chief executive Elon Musk expects that the federal government will continue to help the electric car industry. The company will continue to expand production as well as installation of its superchargers throughout the country.

Tuesday, November 13, 2012, 9:32 AM

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