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Tesla seeks right to sell cars directly to New Jersey customers in lawsuit

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Lucy Nicholson/Reuters/File

(Read caption) Tesla Motors Inc CEO Elon Musk talks about Tesla's new battery swapping program in Hawthorne, California in this file photo taken June 20, 2013. Musk wants to keep selling electric cars directly to the public in New Jersey, but on Tuesday the state said no, insisting instead that Tesla Motors offer its cars through an auto franchise rather than its own stores.

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General Motors isn't the only car company that's spending its Thursday in court: According to NJ.com, Tesla is getting in on the fun, too, filing suit in the hopes that it can continue selling vehicles in New Jersey.

To recap: last month, in a 6-0 vote, New Jersey's Motor Vehicle Commission adopted a new regulation that requires every new car dealer in the state to function as a franchise. That presents real problems for Tesla, which doesn't sell vehicles via a network of franchisees, but instead has Tesla-owned showrooms in malls and other high-traffic locations. Those showrooms offer shoppers a good look at Tesla vehicles, but anyone who wants to test drive or purchase one is typically referred to another outlet or the Tesla website.

That's put a bee in the bonnets of most auto dealership networks, who abide by state franchise laws that generally prohibit automakers from selling directly to customers. Dealers argue that, although Tesla is operating within the letter of franchise laws, the company is violating the spirit of those laws, because Tesla's galleries essentially function as dealerships, meaning that Tesla is selling to shoppers.

Tesla's unique sales model has triumphed in many states, but with these regulations, New Jersey has proven a major stumbling block. Not surprisingly, Tesla CEO Elon Musk has been a little snippy about the whole debacle. Here's a sample from a recent blog post:

"The rationale given for the regulation change that requires auto companies to sell through dealers is that it ensures 'consumer protection'. If you believe this, Gov. Christie has a bridge closure he wants to sell you! Unless they are referring to the mafia version of 'protection', this is obviously untrue. As anyone who has been through the conventional auto dealer purchase process knows, consumer protection is pretty much the furthest thing from the typical car dealer’s mind."

Now, Musk & Co. are fighting back, courtesy of their legal team. In a filing in Superior Court, Tesla claims that, in passing the new regulation, New Jersey's Motor Vehicle Commission succumbed to pressure from the state's association of auto dealers. The filing notes that Tesla had been in talks with Governor Chris Christie, and progress toward a compromise was being made. Then, in March, Tesla says that Christie and the Commission suddenly changed direction, drafting the regulation with no warning. 

The New Jersey Coalition of Automotive Retailers insists that Tesla will fail in court because franchise laws encourage competition, which benefit consumers. Tesla, for its part, says that the new regulation unfairly impacts companies like Tesla Motors, which face an uphill battle at dealerships, since dealers are reluctant to tout new technology. Tesla also points out that not long before the rule change, the Commission made a $5,500 donation to Christie’s inauguration fundraising committee.  

The new regulation was supposed to take effect on Tuesday, but the date has since been rolled back to April 15. Will that be enough time for New Jersey to sort all this out? We can't say, but we do know that Tesla's stock has been climbing ever since the company said it would fight the ban. 

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