Mass. High Court To Hear Arguments In Tesla Case

The Massachusetts Supreme Judicial Court heard arguments Tuesday in a case that will decide whether the Massachusetts State Auto Dealers Association can challenge the way the California electric-car maker Tesla sells its automobiles directly to consumers, bypassing the traditional middle man — the franchise.

The SJC will decide whether Massachusetts auto dealers have the legal standing to block Tesla from selling its electric cars without franchises.

An Uphill Battle?

The auto dealers association claims Tesla is breaking the law, specifically Chapter 93B of the franchise law.

The dealers say manufacturers cannot own and operate stores. And in 2012 they tried to block a Tesla shop from selling cars in the Natick Mall. But a judge ruled that the auto dealers had no standing to bring the case because Tesla isn't like Chevy or Honda — it doesn't operate any existing franchises that are members of the auto dealers association.

The dealers association appealed, and the SJC picked up the case.

Now, the high court will decide whether the state dealers association can challenge the way Tesla sells cars.

"Every competitor would love to put their rival out of business," said John Kwoka, professor of economics at Northeastern University. "And to allow the dealers association or the individual dealer standing would be tantamount to doing that."

Kwoka filed an unsolicited amicus brief in favor of Tesla because he says allowing a dealer to veto the distribution method of an entirely different company is dangerous; it hurts competition.

But regardless of what the SJC decides, Seth Berkowitz, the president of the car review site Edmunds.com, says the fight will likely linger.

"Even if Tesla wins this battle in the Massachusetts Supreme Court, it's still quite possible that there would be legislative action to stop them," Berkowitz said.

This last legislative session, two competing bills were introduced: one to protect the existing Tesla sales model and another to prevent the business model. Neither has advanced into law.

"Tesla is fighting a battle that it cannot win as dealer-franchise laws have been around for a hundred years," Berkowitz said. "And even if they prevail in this little skirmish in Massachusetts ... they will ultimately not be successful selling cars directly."

That's because Berkowitz says fighting individual franchise laws state-by-state is proving an expensive tactic for Tesla.

So far, Tesla has lost the battle for its new business model in five states: Arizona, Texas, Virginia, Maryland and New Jersey.

Berkowitz said the larger issue is a fight over the future of the franchise model. He said, for now, Tesla is trying to find friendly states where it can do business unfettered, and Massachusetts may prove to be one of those safe havens.