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New Jersey became the latest state on Tuesday to block direct sales of cars like Tesla Motor’s (s TSLA) electric Model S, following similar moves by Arizona and Texas and limitations placed on sales in other states, too. Auto companies traditionally sell cars through franchised dealerships, but Tesla has decided to pave its own path and has been building out its stores across the U.S. (and internationally) looking to sell electric cars directly to customers.
Tesla’s stores cut out the dealerships and enable Tesla to own the branding and customer sales experience. Where Tesla can’t directly sell cars to customers it can operate experience outlets that just show off the products to visitors, but don’t actually sell cars in the stores. Tesla says it needs retail outlets to educate customers because the electric car market is so new.
The New Jersey Motor Vehicle Commission approved the new rule change on Tuesday that says that cars in the state can’t be sold directly to customers from the manufacturer. Tesla said it was expecting the debate to go before the New Jersey legislature. The New Jersey Coalition of Automotive Retailers’ (NJ CAR) — which includes car dealers and the associated industry — is a group that had been pushing the commission to make the rule change. It’s reported that they spent $155,000 last year on lobbying for the proposed rule.
Tesla has two stores in New Jersey, and it’s unclear if Tesla would close those stores or just use them as customer education sites. The Tesla team wrote in a blog post that “Governor Christie’s administration has gone back on its word,” and said:
We urge the Christie administration to act in good faith and withdraw the proposed amendment, or amend it so that it reflects the true intent of the Legislature and the people of New Jersey.
The auto industry has operated with the franchise dealership model for decades, so it’s not surprising that when Tesla threatens that model, the dealers are pushing back. But the franchise dealer model also shows how old-school the industry still is, with layers of middlemen and a detachment of the product builders from the users themselves.