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Tesla is a step closer to direct car sales in New Jersey

Christie Appointees Ban N.J. Direct Sales for Musk's Tesla CarsChristie Appointees Ban N.J. Direct Sales for Musk's Tesla Cars

Tesla’s electric cars may soon be driving off the showroom floors in the Garden State, but the legislative win is only a piece of a larger state-by-state legal battle.

New Jersey legislators in the state’s General Assembly passed a bill that will allow as many as four stores to open after Tesla (TSLA) was forced to turn its stores into sales-free galleries in April. The approval would add to Tesla’s current store count across 19 states, plus the District of Columbia, and 17 additional countries worldwide.

The Motor Vehicle Commission revoked its dealer license under a state law that requires dealers to be independent from the manufacturer. The regulation was passed in April by Gov. Chris Christie after he came under pressure from the auto dealer lobby, saying that it ensures “consumer protection.”

(CEO Elon Musk took a jab at that claim on the company’s blog: “If you believe this, Gov. Christie has a bridge closure he wants to sell you!”)

Such laws are not exclusive to New Jersey. Tesla has faced the same roadblocks in Missouri, which also has a law that prevents manufacturers from owning dealerships. Even in states like Pennsylvania, where Tesla currently has stores, laws limit the reach of non-franchise dealerships.

These regulations were originally put in place to protect car dealers in an age when major auto makers were pressuring franchisees to sell their dealerships at very low prices after having invested the time and energy to set up the business and build a customer base.

State legislatures passed the laws to protect car dealers from being pressured by these larger corporations, but the result is a series of vague legal standards in many states that prevent a new company with no franchisees from setting up direct-to-customer salesrooms. (Such laws don’t exist outside of the U.S.)

This traditional dealership-model is what Musk blames for killing past electric car efforts, such as Fisker and Coda. Instead, he opted for Tesla’s company-owned stores.

“The reason we did not choose to do this is that the auto dealers have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none,” Musk said on the company blog. “Inevitably, they revert to selling what’s easy and it is game over for the new company.”

Auto dealers countered the claim, asserting that the franchised dealer network benefits buyers and auto makers by providing “fierce price competition” and “an extremely efficient distribution network that is acutely sensitive to local markets,” according to a study by the National Automobile Dealers Association.

Musk has been campaigning hard to change the franchise-protection statutes and has even broached the possibility of judicial action, which may not be out of the question, yet. The New Jersey bill still has to pass the state Senate and be signed by Gov. Christie before Tesla can start accepting payment in the state.