Tesla Faces Possible Prohibition of Sales in Michigan

Tesla Motors Inc. would be blocked from selling its electric cars in Michigan under legislation that cleared the state’s legislature and now awaits Governor Rick Snyder’s signature to become law.

“Many bills came over as the legislature finished the session, and the governor is doing due diligence by examining all of them,” said Dave Murray, deputy press secretary for Snyder, a Republican. The governor has until Oct. 21 to either sign or veto the bill.

Elon Musk, Tesla’s co-founder and chief executive officer, has said the unique nature of the company’s cars means that they are best sold directly by the company, rather than through franchised dealers. Tesla operates its own showrooms, or galleries, and takes orders over the Internet. That approach undermines how franchisees have sold vehicles for decades, dealers have said.

This year, Tesla also butted heads with dealer groups in Georgia, Missouri, New Jersey, New York, Ohio and Pennsylvania before reaching compromises.

The youngest publicly traded U.S. automaker, which is based in Palo Alto, California, was surprised to see the bill pass this year in its current form, said Diarmuid O’Connell, Tesla’s vice president of business development, who encouraged Snyder to veto the bill.

‘Open Dialogue’

“We were in open dialogue, and were anticipating discussing this in the legislature in the coming year,” he said in a telephone interview. “Dealers, under the cover of darkness, are foreclosing that debate, I can only assume because they don’t like their prospects in the public debate that we seek.”

The National Automobile Dealers Association, which represents almost 16,000 new-car dealers, favors the franchised-dealer network.

“States are fully within their rights to protect consumers by choosing the way cars are sold and serviced,” Charles Cyrill, a spokesman, said in an e-mailed statement. “Fierce competition between local dealers in any given market drives down prices both in and across brands. While if a factory owned all of its stores, it could set prices and buyers would lose virtually all bargaining power.”

The bill prohibits automakers from selling a vehicle “directly to a retail customer other than through franchised dealers,” with exceptions for nonprofit organizations and government agencies.

Industry Home

Older car companies are well-established in Michigan, home to General Motors Co., Ford Motor Co. and the Chrysler Group. Detroit-based GM is the nation’s largest automaker with 17.8 percent of light-vehicle sales this year through September, according to researcher Autodata Corp. Ford, based in Dearborn, is No. 2 with a 15.1 percent market share. The U.S. unit of Fiat Chrysler Automobiles NV, based in Auburn Hills, is fourth with a 12.5 percent share.

Toyota Motor Corp., an investor in Tesla, ranks third in U.S. sales with a 14.4 percent share. Tesla’s share is 0.1 percent, according to Autodata estimates.

“We already have a number of owners in Michigan,” O’Connell said. “It’s a car culture. We’ve got a huge supplier base there. We want to make direct investments in stores and suppliers. We’re a growing company with a mission to catalyze mass-market electric vehicle sales.”

Tesla fell 1.5 percent to $226.35 at the close in New York. The stock has increased about 50 percent this year.

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