Tesla Fights New Jersey Ban on Direct Car Sales in Court

Tesla Motors Inc. (TSLA) appealed New Jersey’s ban on direct auto sales, arguing that the decision thwarts the carmaker’s mission of providing sustainable transportation and unfairly favors entrenched franchise dealers.

The action comes as Elon Musk, Tesla’s chief executive officer and co-founder, fights with car dealer groups across the U.S. to let the Palo Alto, California-based maker of electric Model S sedans sell directly to consumers from company stores.

Tesla challenged a direct-sales ban imposed by a New Jersey commission in state Superior Court, according to documents made available by the company. The filing couldn’t immediately be verified in court records.

Restrictions by U.S. states on how Tesla sells its battery-powered Model S, priced from $71,000, would slow Musk’s plan to shift his company from a niche maker of battery-powered luxury cars to an automotive powerhouse. Tesla’s fight with dealers has increased scrutiny of U.S. auto franchise rules that go back eight decades.

“Franchise dealers have an inherent conflict of interest in selling electric vehicles,” Tesla said in court papers. “In order to do so effectively, they would need to enthusiastically tout the reasons why electric vehicles are superior to gasoline vehicles. This is not something that they are going to do since gasoline vehicles represent virtually all of their revenue.”

Tesla rose 6.1 percent to $230.29 at the close in New York, the biggest one-day jump since Feb. 25. The shares have advanced 53 percent this year.

Jersey Stores

Texas and Arizona have also barred Tesla from selling cars directly to customers. Ohio’s Senate yesterday approved a bill allowing the company to open a third store in that state. Tesla and New York auto dealer lobbying groups last week reached an agreement for the electric-car maker to keep its five company-owned stores there and add others.

The company has said rules restricting direct car sales by automakers were created to protect dealers from unfair competition and mistreatment by manufacturers of the brands they sold. Since Tesla has no franchise dealers, it argues such rules shouldn’t apply to its retail operations.

Tesla’s two stores in the state initially were told to halt sales on April 1 by the New Jersey Motor Vehicle Commission. The panel, which unanimously approved a proposal to ban direct sales to consumers by carmakers on March 11, last week extended the deadline to April 15.

Tesla has New Jersey stores at the Mall at Short Hills and the Garden State Plaza in Paramus.

Chris Christie

The commission includes members of New Jersey Governor Chris Christie’s cabinet. Christie, a Republican, said at a town hall meeting last month that he’s told Tesla to work with state legislators to revise the rules.

“I’ve also told them ‘go get the law changed, I’m happy to sign it to permit you to operate,’” Christie said, according to remarks provided today by his office. “But what they wanted me to do was to give them some regulatory break that was contrary to the law. I’m not permitted to do that.”

Kevin Roberts, a spokesman for the governor, had no immediate comment on Tesla’s court appeal.

The New Jersey commission exceeded its authority with the rule changes that violate the state’s constitution, Tesla said. The move will harm consumers and limit fair competition, the company said.

Ohio Vote

Tesla said last month, before filing the appeal, that it plans to convert its New Jersey stores to “galleries” that can only display cars. As is required in Texas and Arizona, workers can’t discuss pricing or tell customers how to buy a Model S.

The company should adjust its approach to conform to New Jersey law or seek legislative changes to it, James Appleton, president of the state’s dealer association, said last month.

In Ohio, where Tesla sells its cars in Columbus and Cincinnati, the state Senate yesterday passed a bill 32-0 to let the carmaker open an additional store. The bill now goes to the House of Representatives for approval.

Tesla backers last year posted a petition to the White House website asking President Barack Obama to “allow Tesla Motors to sell directly to consumers in all 50 states.”

“The state legislators are trying to unfairly protect automobile dealers in their states from competition,” according to the petition created June 5, 2013.

While the petition got the 100,000 signatures needed within a specified period to draw a White House response, Obama administration officials have yet to comment on it.

“Every petition that crosses the threshold will be reviewed and receive a response,” Matt Lehrich, a White House spokesman, said today in an e-mail.

To contact the reporters on this story: Sophia Pearson in federal court in Philadelphia at

spearson3@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Jamie Butters at jbutters@bloomberg.net Niamh Ring

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