The experience Tesla Motors Inc (NASDAQ:TSLA) created for a customer when it enters a showroom is perfectly designed to entice them into purchasing one of its luxury cars in the store. This week’s ruling from a state district court judge may force Tesla to add another step to this process in Missouri.
The judge ordered that a license the Missouri Department of Revenue, or MDR, issued to Tesla that allowed it to bypass the dealer network that traditional manufacturers are bound by broke Missouri’s Motor Vehicle Franchise Practices Act. The judge did not go as far as to say the department’s actions were unconstitutional, but he agreed, “a single entity may not manufacture vehicles for sale in Missouri and possess a Missouri new motor vehicle dealer license.”
The MDR granted Tesla a license for a University City dealership in 2013 and a franchise dealer license for a Kansas City dealership in 2014. This allowed the company to sell cars directly to customers instead of through a dealership serving as a middleman. The Missouri Automobile Dealers Association, a trade group that represents new-car and new-truck dealers, sued the MDR claiming that it had given Tesla special treatment, since other manufacturers typically provide cars to franchised dealerships to sell. In order to get this exception from the MDR Tesla had to obtain a dealership license which it self authorized. Its application read, “Tesla Motors…authorizes Tesla Motors” to sell Tesla vehicles.
Tesla won’t lose its current license in these stores, but if it loses its appeal it will be unable to renew its licenses in these locations. The ruling will put Tesla’s Missouri business in jeopardy as it states that customers will still be able to visit Tesla’s showrooms, but they will now have to purchase cars online instead of in the store. This added step is where Tesla could lose out on potential customers.
Missouri is not the only state where Tesla is dealing with this issue. Tesla prefers not to use third-party dealerships because of their inability to sell the electric vehicles due to a lack of desire or knowledge. Additionally, dealerships make a majority of their profit by servicing the vehicles they sell; Tesla tries not to make profit on service.
Tesla is arguing that the lawsuit was an effort to decrease competition and limit consumer’s choice in Missouri. The company plans on appealing the decision and released a statement saying “the statute in Missouri permits Tesla to sell directly and the State Agency has supported these laws by granting Tesla licenses to serve its customers in Missouri.”