Tesla won a critical case in Delaware’s Supreme Court to allow the direct sale of electric vehicles in the state.
To this day, there are still some states that prevent Tesla and other automakers from selling directly to consumers.
It’s due to old laws put in place to protect franchise dealerships against automakers that were trying to compete with the people who invested a lot of money into providing a sale and service workforce for them. It made a lot of sense.
But now, those same laws are being used to prevent Tesla and other new automakers who never had franchise dealerships from competing against dealers who sell vehicles from other automakers.
It is being used in an anti-competitive way.
Several states have changed those direct sale laws in order to avoid this misuse that gave a monopoly on car sales to third-party dealers.
But there are still a few states where car dealers have a lot of influence with politicians, and they are convincing them to use those old laws and apply them to companies – like Tesla – to prevent them from opening their own stores.
Delaware is one of those states, and the DMV interpreted the law the way that car dealers wanted, meaning that no car manufacturer can operate a dealership even if they don’t have any franchised dealers. Tesla challenged the DMV’s direction in Superior Court, and failed.
The case went on to Delaware’s Supreme Court and this week, Tesla won the case.
Here’s the court’s decision:
We reverse the DMV Director’s decision and the Superior Court judgment and remand for further proceedings consistent with this opinion. The General Assembly enacted the Franchise Act to address the disparity in bargaining power which permitted new motor vehicle manufacturers to exert economic pressure over their franchises. Its definitions exclude Tesla and its direct sales model, where new electric cars are not sold through franchised dealers in Delaware.
It’s a big win for Tesla, but also Lucid, Rivian, and other automakers who are going the direct-sale route.
However, those other companies are not quite ready to have a location in Delaware. For Tesla, if they decided to go through that process, it sounds like they will invest in a location in Delaware.