Over the past decade, Tesla has made a name for itself in the automotive industry through innovative design and the noble goal of reducing every human’s carbon footprint. While Tesla is looking toward a brighter future, it seems that automotive regulations are living in the past. Tesla has been operating dealerships in Missouri for a few years now, but last week a Cole County judge ruled that its current business model violates state law.

The ruling comes from a lawsuit filed by the Missouri Automobile Dealers Association (MADA) against the Missouri Department of Revenue. MADA argues that allowing Tesla to sell directly to consumers is forbidden by the Motor Vehicle Franchise Practices Act (MVFPA) and that the DOR was mistaken in granting a dealer’s license to Tesla. The law requires manufacturers to sell cars via a franchise agreement with a car dealer, but Tesla argues that the two (manufacturer and franchisee) can be one and the same. In other words, Tesla established an agreement with Tesla to sell Tesla’s cars.

Regardless of whether Tesla is exploiting a loophole in the current legislation, to me the real question is whether the law should effectively prohibit a manufacturer from selling to consumers. While dealerships can reduce a manufacturer’s burdens regarding advertising, selling, and maintaining cars for consumers, does it make sense to “force” a third party into the mix? Given that dealerships tend to provide insufficient information on electric cars, and that direct manufacturer sales can lower distribution costs, it’s difficult to see the rationale behind limiting consumers’ decisions regarding how to purchase a car.  

Tesla is bringing innovation into Missouri’s automobile industry, and to shun such innovation is a missed opportunity. Regulations such as the MVFPA should be in place to serve consumers, not protect specific dealerships. If they don’t do this, then perhaps it’s time for an updated business model.

Michael Highsmith

About the Author

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Michael Highsmith

Michael is a policy researcher at the Show-Me Institute. A native of Saint Louis, he earned a Bachelor of Science degree in business administration with emphasis in economics at Saint Louis University. Michael is researching budget and tax policy with the Show-Me Institute.