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Tesla Sues Michigan State Officials on Dealer Sales Law

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Tesla Motors, Inc. (TSLA - Free Report) has sued a number of Michigan State Officials in federal court, challenging the state’s law that prevents car manufacturers from selling directly to customers and not via an independent dealership.

The Lawsuit

Tesla has sued Michigan Secretary of State Ruth Johnson, Attorney General Bill Schuette and Governor Rick Snyder as it claims the law passed in 2014 is “anti-Tesla” and unconstitutional. The company is looking to prevent the enforcement of the law which prohibits automakers from selling without an intermediary dealership. This comes after the state denied a dealership license to Tesla last week. Previously, the company had applied for a license to open a retail store in Michigan in fall 2015, which was rejected.

The Michigan law passed in 2014 allowed manufacturers to sell cars through the franchised dealers of another manufacturer’s network in the absence of their own dealer network. Per officials, the state already had rules that made it compulsory for manufacturers to sell their vehicles via authorized dealerships and it was not something new in the 2014 law.

Tesla’s Stand

Tesla contended that the rejection of its application for a dealership violates the Due Process, Equal Protection and Commerce Clauses of the Constitution. It seeks to prevent the enforcement of related laws, including the 2014 rule. The company sells all its cars directly worldwide and in all U.S. states except Michigan, Texas, Connecticut and Utah.

Tesla claims the distribution of its electric cars is only feasible through direct sales to customers, instead of the traditional dealership model. Dealers operate a system of selling more units at negotiable prices with add-ons and surcharges, which is not applicable for Tesla.

The automaker further said that franchised dealers would not benefit by selling its vehicles as Tesla follows a uniform price system and has no mark ups for dealers. The company’s bid to register a repair facility for its vehicles in Michigan has not been decided on as yet.

Shares of Tesla closed 0.6% higher at $206.43 on Sep 22.

Zacks Rank

Tesla currently carries a Zacks Rank #3 (Hold). 

Some better-ranked auto stocks include Cooper-Standard Holdings Inc. (CPS - Free Report) ,Standard Motor Products Inc. (SMP - Free Report) and Douglas Dynamics, Inc. (PLOW - Free Report) .

Cooper-Standard has witnessed positive estimate revisions in the last 60 days and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Standard Motor Products, a Zacks Rank #1 stock, has a long-term expected growth rate of 15%.

Douglas Dynamics has seen its estimates move north in the last 60 days. The stock sports a Zacks Rank #1.

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