Will New Jersey Lawmakers Give Tesla the Green Light?

Tesla Motors sells the most widely acclaimed electric car on the market, most recently being named Consumer Reports’ car of the year.

However, a dispute between the carmaker and the state threatens to make the Tesla S virtually impossible to purchase in the state of New Jersey.

The issue is that Tesla currently does not satisfy any of the state’s new franchise requirements. It typically sells its vehicles in “galleries,” which are frequently located in malls or similar shopping centers and only feature one vehicle.

On March 11, the New Jersey Motor Vehicle Commission (MVC) passed new rules governing the licensing of motor vehicle dealers in the State of New Jersey. Under the amendments to the New Jersey Franchise Practices Act, applicants for a new-car sales license, or for license renewal, must submit “a copy of the applicant’s franchise agreement(s) with the motor vehicle manufacturer(s) whose makes and models the applicant is franchised to sell.” The amended rule also requires dealerships to be at least 1,000 square feet in size, showcase at least two vehicles, and include equipment for performing vehicle maintenance.

The rationale is that such laws promote price competition and provide a local point of contact should the vehicle be recalled and need repair. However, they effectively outlaw Tesla’s current business model, something the company alleges Gov. Chris Christie assured would not happen.

The Legislature is currently working to craft a solution that will allow Tesla to stay in New Jersey. The state Assembly recently passed a measure (A-3216) that would allow any a zero-emission vehicle (ZEV) manufacturer to directly or indirectly buy from and directly sell, offer to sell, or deal to a consumer a ZEV if the manufacturer was licensed by the MVC on or prior to January 1, 2014. It specifically preempts any rule or regulation that restricts sales exclusively to franchised dealerships.

To appease regulators, the bill does require Tesla to own or operate at least one retail facility in New Jersey for the servicing of its vehicles. The carmaker is also limited to four retail locations in the state.

It will now be up to the Senate to act. Please check back for updates.

If you have any questions about this post or would like to discuss New Jersey’s franchise laws, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work.