Tesla Motors Inc. will stop selling its luxury electric cars in New Jersey on April 1, after the state said Tuesday it wouldn’t license the company to sell vehicles directly to consumers, bypassing franchised dealers.
The defeat for Tesla, which owns its own stores, came despite a furious 11th-hour lobbying effort. A senior Tesla executive had accused New Jersey Gov. Chris Christie of breaking a deal to hold off on a rule change requiring all car retailers in the state to have a franchise agreement with an auto maker. The New Jersey Motor Vehicle Commission approved the rule change Tuesday.
Mr. Christie’s spokesman countered that Tesla knew that it was operating outside state laws.
Tesla has been battling in New Jersey and other states to defend its direct-sales model against attacks by franchised dealers representing rival brands.
Tesla’s problems have their roots in decades of mistrust between independent car dealers and auto makers. Over the years, dealers have fended off efforts by the auto makers to set up company-run stores that could compete with them. The dealers have pushed for—and won—state legislation to protect their franchises.
Dealers fear Tesla’s model could cause directing selling to spread to other manufacturers, ending a century-old system that protects the sales territories and investments of many independent businesspeople.
Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, said Tesla was well aware of the proposed rule change and submitted comments on it when the proposal was under public review.
“Tesla is making a big play today in trying to drag political and legal intrigue into this battle when none exists,” Mr. Appleton said.
He added that the New Jersey vehicle agency made a mistake in giving Tesla a license in the first place, since its direct-sales model was illegal under state law.
Tesla officials have defended the model, saying that electric-car technology is new and requires the manufacturer to play a hands-on role in educating consumers. Tesla, which is based in Palo Alto, Calif., sells just one electric-car model, which starts at $71,000. Last year, it sold 22,400 cars globally.
Diarmuid O’Connell, Tesla’s vice president of business development, said Tuesday that the New Jersey move amounts to a “death penalty” for the company’s two auto stores in the state and could encourage dealers in other states to follow suit by attacking the company through regulation, rather than legislation.
“This is at the very least disappointing, if not outright outrageous what’s going on with our business in N.J. right now,” Mr. O’Connell said.
A spokesman for Gov. Christie said that his administration made clear to Tesla when it began operating in New Jersey a year ago that it would need legislation to establish direct-sales operations under state law. The change made Tuesday was the final step in a rule-making process that began in October and has been open to public comment.
“They’ve been portraying this as sprung upon them, but that’s just not true,” the spokesman said. “Tesla has been aware of this position from the beginning.”
New Jersey is now the third state in which Tesla is banned from selling cars directly to consumers. The other two are Texas and Arizona.
Tesla has been successful in knocking down legislative efforts in other states to block its direct-to-consumer sales.
Tesla operates two retail stores in New Jersey with 27 employees and had plans for more. It is unclear whether the Tesla stores would revert to “galleries,” showrooms in which consumers can check out vehicles but not buy them.
Mr. O’Connell called the gallery option a “suboptimal” situation. A Tesla spokesman said it isn’t certain whether the company can sell cars online to New Jersey residents.
Tesla also is facing new challenges in Ohio, where legislation has been proposed to prevent direct sales. Tesla officials worry that the approach taken in New Jersey could eventually be adopted by dealer groups in other states if it works in shutting down its stores.
“They’ve found it difficult to advance their arguments in the light of day,” Mr. O’Connell said. “They have increasingly gone underground.”
Tesla hasn’t ruled out countering the state-by-state opposition with an appeal to the federal courts or pursing legislative action in Congress.
“Certainly that’s one of the strategies we’ve discussed,” Mr. O’Connell said. But no decision has been made, and the company wouldn’t likely pursue action at the federal level unless it was shut out of one of its core markets, he said.
“We don’t want to be in these dust-ups,” he added. “We’re fundamentally an engineering company.”
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