It’s possible. Some state dealer association leaders say Tesla operates illegally in their states, but if the automaker were to close its sales and service locations and go to online-only sales as it plans, that also could violate some states’ statutes that require a physical location.
“The attorney general in each state is going to have to look at how the online-only selling of vehicles complies with the laws in those states,” said Robert O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association.
Tesla CEO Elon Musk was asked in a conference call Feb. 28 if he was concerned that the online-only model would meet further resistance, especially from auto dealers touting state franchise laws.
“I’m sure the franchise dealers will try to … oppose us in some way but this would be a fundamental restraint of interstate commerce and violate [the] Constitution,” Musk said. “So good luck with that.”
Musk was referring to the Commerce Clause of the U.S. Constitution, which says Congress has power over interstate trade, but the clause has been subject to differing interpretations in arguments of state vs. federal power.
Len Bellavia, a New York lawyer specializing in dealer franchise law, said Musk’s comments are overly simplistic. The clause is “not a free pass because states do have a right to regulate a legitimate interest in health, safety and welfare,” Bellavia said. “To the extent he’s relying on the interstate Commerce Clause, I think he’s in for a surprise or at least a battle on several fronts.”
In addition to franchise statutes, those fronts could include state laws and regulations governing licensing, so-called lemon vehicles and wet-ink signature requirements, Bellavia and some dealer association leaders said.
In California, for instance, Tesla’s online-only retail strategy would violate state law requiring wet signatures for vehicle sales and leases, said Brian Maas, president of the California New Car Dealers Association. To sell vehicles in California, Tesla must also have a brick-and-mortar site where the Department of Motor Vehicles can serve papers and where vehicle sales are conducted, Maas said.
Though some of Tesla’s California stores closed last week, it still lists many retail locations in the state.
And it remains to be seen what an online sale means to Tesla. Though many traditional dealers and used-vehicle sellers such as Carvana handle much of a vehicle sale online, the fully online transaction remains elusive, blocked by legal hurdles such as those signature requirements.