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What impact will Michigan’s Tesla ban have?

Amid all the outrage over yet another state’s auto dealers blocking Tesla’s direct sales business model, not many people are talking about the fact that Tesla was not allowed to sell direct in Michigan in the first place, and that the new legislation won’t have much effect – at least initially.

Admittedly, it is frustrating to see Tesla Motors face so many legal obstacles in its effort to sell cars direct to consumers, a practice which by all accounts is more effective at selling electric vehicles and more enjoyable for customers.

We explored this issue when the Michigan legislation first made its way to Governor Snyder’s desk: when it comes to selling electric vehicles, customers think very highly of the Tesla business model and are generally irritated with the traditional dealer experience.

New legislation, not much difference

However, it should be pointed out that Tesla was never allowed to sell direct in Michigan in the first place. The existing law stated that a manufacturer may not “sell any new motor vehicle directly to a retail customer other than through franchised dealers, unless the retail customer is a nonprofit organization or a federal, state, or local government or agency.”

The amendment, in the form of House Bill 5606, added the word ‘its’ to the above statement to say that a manufacturer may not “sell any new motor vehicle directly to a retail customer other than through its franchised dealers.”

That’s the part that happened at the last minute, which some people were understandably upset about. However, another section of HB 5606 states that a manufacturer may not “directly or indirectly own, operate, or control a new motor vehicle dealer, including, but not limited to, a new motor vehicle dealer engaged primarily in performing warranty repair services on motor vehicles under the manufacturer’s warranty, or a used motor vehicle dealer.”

That part is very important as well, as it prevents Tesla from even opening a combination of company-owned gallery and service centers as it has done in several ‘ban’ states. The effect of the bill is to lock Tesla out of Michigan entirely, largely at the behest of the auto dealers but likely with the support of the Big Three automakers.

GM voiced its opinion, saying the legislation would "ensure that all automotive manufacturers follow the same rules" for selling cars in Michigan. Tesla shot back in a statement, saying “What’s good for gasoline cars is not necessarily good for electric cars.” True enough.

Why the sky isn’t falling

Michigan is known for its loyalty to the automakers that call the state home. It has never been a critical market for the Palo Alto electric carmaker – Tesla has no stores in Michigan, and there are only approximately 100 Tesla Model S sedans registered in the state. At the moment, the new legislation does not do much to change the status quo.

Those few Michiganders that burn with desire for Model S for the foreseeable future, as with the past few years, will have to purchase the vehicle online, have it delivered to a neighboring state, and drive it back to Michigan for registration.

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However, though Tesla currently has very little presence in Michigan, no doubt it would someday like to sell cars there. This ban may become more relevant when Model X and Model 3 hit the roads to join Model S in far greater numbers than current Model S volumes, as Michigan is a sizable market to be locked out of even if most of the population remains loyal to their local automakers.

Right now this ban is mostly just a nuisance, particularly because Tesla is prevented from opening even a service center in Michigan. The automaker will have to continue its quest to rally public opinion to its side and lobby for legislation in its favor, and now Michigan is simply another state added to the list of states where Tesla is fighting an uphill battle. Or the company could simply resort to franchised dealers, which CEO Elon Musk is at least willing to consider.

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Comments

The bill actually goes a step further, it prevents Tesla from opening a gallery and might even prevent Tesla from attending the Detroit auto show.
This anti-competitive action against Tesla does not comply with the requirements of the Sherman Antitrust Act.
I agree. This Michigan vote has gone far enough to lead to this being taken up by the federal courts as state laws being in violation of federal interstate commerce laws (a number of them, actually). Tesla will win like gay marriage has essentially won, and it will probably happen faster since the precedents are more clear.