The New Jersey Motor Vehicle Commission on Tuesday voted to ban the direct sales model used by Tesla Motors Inc. (NASDAQ: TSLA) to sell its cars. The state’s auto dealers successfully whined that automakers should not be allowed to sell directly to consumers.
New Jersey now joins Texas, Arizona and Virginia as states that have banned or seriously restricted Tesla’s direct sales model. Car dealers argue that they prevent carmakers from taking advantage of consumers and protect price competition. That should be a tough argument to use against Tesla, which claims its pricing is fully transparent and that it maintains a superior service record.
Tesla also argues that it is selling a new technology as much as it is selling a new car, and that the direct sales model gives the company’s employees time to make sure customers understand how that technology works. A Tesla official told Bloomberg News, “There is nothing in the history of the franchise auto-dealer model which would suggest that we could be successful in that context at this time. Nothing.” He said that may change in the future, “But that future is not now.”
The next battleground state for Tesla is Ohio, where company officials are meeting with legislators to seek a compromise to legislation that would ban direct sales. In Virginia, Tesla reached a compromise that allowed the company to open one store in the state. So far, the company has had little luck convincing Ohio legislators to be more flexible.
A report at Business Insider noted that in New Jersey, auto dealers spent nearly $700,000 on hundreds of political donations on behalf of dealers in the years between 2003 and 2009. Tesla spent exactly zero.
Tesla shares were up about 3% in the noon hour on Wednesday, at $241.35 in a 52-week range of $34.92 to $265.00.