Tesla sues car dealers in Louisiana, part of broader campaign to allow for direct sales | Business News

Electric-car maker Tesla has filed a federal lawsuit aiming to overturn a Louisiana law that bars carmakers from selling cars directly to customers in the state.

The lawsuit, filed Friday in the US District Court for the Eastern District of Louisiana, argues that a 2017 update to the state’s long-standing law against direct-to-consumer car sales “effectively shut out of Louisiana the consumer-centric, free- market solution that is a more efficient, consumer friendly business model for today’s automotive consumer.”

It further argues that the direct-sales approach is needed to adequately explain the benefits of its electric vehicles to customers.

The legal move is part of a widespread campaign by the Austin, Texas-based car company to try and break down a decades-old franchise system that keeps the business of retail car sales separate from manufacturing.

The dealership system in the car industry dates back decades to when independent dealers argued they could prevent carmakers from having too much power over consumers and to ensure local after-sales servicing.

However, in recent years 18 states have changed laws requiring independent dealers in direct response to Tesla and its mold-breaking direct-sales strategy. At the same time, several states have doubled down on laws preventing direct sales, with Louisiana and Texas — Tesla’s new home state — among them.

Tesla, which is controlled by billionaire Elon Musk, names as defendants in the lawsuit the Louisiana Automobile Dealers Association, the industry’s trade body, and the Louisiana Motor Vehicle Commission, which is the regulator whose board is comprised mostly of car dealers. The lawsuit also names about two dozen of the individual board members or their companies.

Will Green, President of the Louisiana Automobile Dealers Association, said of Tesla’s lawsuit that “the factual allegations appear baseless and grossly misstate the specific history of the plaintiff’s doing business in Louisiana.”

Gregory Lala, Chairman of the Louisiana Motor Vehicle Commission, who is also owner of Dixie RV SuperStores and one of the defendants named in the lawsuit, wasn’t immediately available to comment.

Alleged collusion

The lawsuit alleviates that members of the trade body and the regulatory commission — which often overlap — have colluded to exclude Tesla not only from direct sales but from leasing its vehicles in the state.

“Tesla has uncovered communications between the Dealers Association’s members and the Commission evidencing a common purpose to exclude Tesla from operating in Louisiana,” the lawsuit alleges.

“Although Louisiana law (unconstitutionally) prohibits Tesla from selling its vehicles in Louisiana, nothing in Louisiana law prohibits Tesla from leasing its vehicles in Louisiana or providing warranty repairs and services for the many Tesla vehicles in Louisiana,” it says, alleging that the law violates federal and state antitrust laws and state prohibitions against unfair trade practices.

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Tesla didn’t respond to requests for further comment. The company’s lawyer in Louisiana, Mark Beebe, declined to make any additional comment.

One stop shop

A car buyer in Louisiana who wants to buy a Tesla currently can do so by ordering via the company’s website, which is then considered to be an out-of-state purchase.

Tesla opened its first and, so far only warehouse in Louisiana three years ago, at the corner of Tchoupitoulas Street and Washington Avenue in New Orleans. New cars are delivered there. It is also the company’s only service center in the state.

Louisiana has a relatively small number of electric vehicle owners, with a little over 3,100 in 2021 out of a total of nearly 2 million registered cars in the state, according to industry tracker Electrek, citing Experian Information Solutions data. Though less than 1% of the US electric vehicle market, ownership grew by 63%, well above the national average of 43%.

Green said that Tesla’s allegations “appear to go against years of antitrust jurisprudence and constitutional law.”

He said that rolling back the direct car sales prohibition would also put at risk thousands of jobs in the car retailing industry.

“Louisiana dealerships benefit communities by employing nearly 35,000 folks in good paying careers spanning sales, service and management that average more than $70,000 in compensation,” he said. “Out of state technology companies don’t care about Louisiana’s communities – local dealerships that have operated here for generations do.”

Incentives for Electric

Tesla’s action comes in the wake of the passage earlier this month of the Inflation Reduction Act which contains a big tax break for electric vehicle purchases as well as other initiatives to spur a quicker move toward electric car ownership.

A move by California lawmakers to ban gas-powered cars by 2035 is expected to be followed quickly by other states and hasten the move toward electric vehicles, which are fast growing but still accounted for just 630,000 out of a total 15 million cars and trucks sold last year.

Perhaps more worrying for the US’s 18,000 independent car dealers than Tesla’s actions were comments last month by Ford’s chief executive Jim Farley that his company aims to have 100% of its sales be online as it moves from combustion engine to electric vehicles.

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