Tesla applies for Michigan dealership license
Tesla Motors Inc. has applied for licenses to sell and service its luxury electric vehicles in Michigan, even though Gov. Rick Snyder signed legislation in late 2014 that bans the company’s business model of directly selling cars to customers.
The Palo Alto, California-based automaker submitted applications in November to the Michigan Secretary of State Office, and submitted follow-up information in recent weeks.
Secretary of State spokesman Fred Woodham said the department is reviewing the applications and a decision is expected “in the next month or two.” He declined to comment on what additional information was requested by the office, saying it “isn’t uncommon during the application review process.”
Tesla applied for a “Class A” dealership license to sell new and used cars. Under the classification, it also must have a “repair facility as part of their business or have an established relationship with a licensed repair facility,” Woodham said in a Sunday email to The Detroit News.
If the Secretary of State approves the applications, Tesla could begin selling and buying vehicles as long as any local business permits that may be required have been taken care of.
If the applications are denied, Tesla has not shied away from lawsuits over state laws that ban its direct-sales model.
As of Sunday night, it was unclear who within Tesla — CEO Elon Musk, Chief Financial Officer Deepak Ahuja or another executive — submitted the applications. Additional information could come on Feb. 10, when Tesla is scheduled to release its fourth-quarter and 2015 earnings.
Tesla on Monday confirmed the applications, saying they are intended to confirm that the 2014 law bars its direct sales methodology.
“Submission of the application is intended to seek the Secretary of State’s confirmation of this prohibition,” said a Tesla spokesperson in an email to The News. “Once confirmed, Tesla will review any options available to overturn this anti-consumer law.”
Michigan Information & Research Service Inc., which first reported the Tesla applications, said that based on the Secretary of State applications in general, Tesla could contract with anyone to sell its cars, except itself.
The Lansing-based capital news service argues the company could even send a former employee to open a Tesla dealership with a franchise agreement “in which it mandates the dealership look, act and do business exactly as the Tesla-run stores.”
In its third-quarter report to the U.S. Securities and Exchange Commission in November, the company said it had “clarified” a New Jersey law following a lawsuit and officials were “evaluating legislative and litigation solutions to remedy the situation in Michigan.”
Tesla filed the applications as it tried for several months to win over legislators, dealers and automakers in Michigan. Tesla has offered a number of test-drives to educate lawmakers and other state officials about its cars.
Snyder signed a bill banning automakers from selling vehicles directly to customers in October 2014. The legislation had been approved overwhelmingly by both houses, and was backed by Michigan’s new-car dealership lobby. The law closed a loophole that Tesla has used in other states to maintain company-owned retail stores and bypass the dealership route.
The governor said then that the law “clarifies and strengthens” an existing long-standing law that prohibited direct sales of new cars in Michigan. Previous state law prohibited automakers from selling new vehicles directly to retail customers except through its franchised dealers; the revised law removed the word “its,” which Tesla executives said was a last-minute strike at their company.
The bill was initiated by the Michigan Automobile Dealers Association, an East Lansing-based trade association that represents the interests of the more than 650 franchised new-vehicle dealerships in the state.
Auto dealers have long insisted protections are needed for franchise dealers who have invested millions in storefronts; they worry dealers could be undercut if automakers sell directly to consumers. State laws were passed in the wake of questionable tactics by some automakers more than a half-century ago.
In May, the Federal Trade Commission sent a 10-page letter that urged the Michigan Legislature to reconsider the ban on Tesla and other automakers from directly selling to consumers. The agency said the ban leads to “protectionism” for dealers and is “likely harming both competition and consumers.”
As of December, Tesla estimated it had more than 400 customers in Michigan who have had to drive to neighboring states or to Ontario to buy a car — or have purchased them online. Stores closest to Michigan are in Chicago and surrounding suburbs; Indianapolis; and in Ohio, near Cleveland and in Columbus. The company has retail stores or galleries in 25 states, plus the District of Columbia.
The company does have a presence in Michigan through Riviera Tool LLC in Cascade Township near Grand Rapids, which the automaker bought last year and renamed Tesla Tool and Die Factory.
Tesla also has opened four fast-charging stations for Teslas in the state. Its website says a Detroit service center is “coming soon.”