The Missouri Auto Dealers Association is suing the Missouri Department of Revenue and its director, Nia Ray, for allowing electric-car maker Tesla to sell vehicles directly to consumers.
In the lawsuit filed Thursday in Cole County Circuit Court, the Missouri Auto Dealers Association, or MADA, alleges the revenue department issued a dealers license to Tesla to sell vehicles in Missouri in violation of state law.
Tesla, the Palo Alto, Calif.-based maker of electric vehicles that was founded in 2003, does not sell its cars through traditional franchised dealerships. Rather, the company, led by billionaire CEO Elon Musk, sells vehicles from company-owned stores and over the Internet.
Tesla opened a $2 million service center in University City in June 2013 after it was issued a dealer license by the revenue department in the spring of 2013. Tesla has since added multiple charging stations locally, including at the Four Seasons and Magnolia Hotel St. Louis downtown.
Telsa also opened a store in Kansas City last month. Its entry-level Model S starts at $69,900.
There are nearly 200 Model S cars in Missouri, according to Tesla.
MADA, which represents 381 franchise car dealers, maintains that state law requires manufacturers to sell motor vehicles through a dealer holding a valid franchise agreement with the manufacturer.
The revenue department and Ray “have created a non-level playing field where one entity — Tesla — is subject to preferential treatment and all bona fide dealers are discriminated against,” the lawsuit states. Reuther Ford, a dealership in Herculaneum, and Osage Industries, an ambulance manufacturer based in Osage County, joined the MADA as plaintiffs.
Last year, an amendment to a bill in the Missouri Legislature sought to end direct-to-consumer sales by Tesla, but the amendment was ultimately pulled from the bill.
Michelle Gleba, the revenue department’s spokeswoman, said the department does not comment on pending litigation.
Last year, the department’s acting director, John Mollenkamp, said in a statement that automakers that have existing franchise agreements with dealers are barred from competing directly with them, however the law does not apply to companies that never had such agreements.
A Tesla spokesman made the same argument Thursday.
“The fact that MADA tried and failed last year to change existing Missouri law to make it apply to Tesla, proves the frivolousness of this legal challenge,” Diarmuid O’Connell, Tesla’s vice president of corporate and business development, said in a statement.
But Lowell Pearson, MADA’s attorney and a former revenue department deputy director, said the state has, in effect, created “an exception for a new entrant in the business.”
“It disadvantages hundreds of Missouri car dealers who have been doing business for many, many years,” he said.
Pearson said the MADA is asking the Circuit Court to bar the revenue department from renewing Tesla’s license for the University City location and bar it from receiving other dealer licenses elsewhere in the state.
“It’s quite well established that a car manufacturer cannot sell vehicles directly to the public and they must be sold through a licensed dealer,” Pearson continued. The revenue department “chose not to enforce that law for Tesla.”
Opponents of Tesla’s business model in other states have argued that it runs afoul of state laws that prohibit direct sales of motor vehicles by manufacturers. In September, Tesla prevailed in a lawsuit brought by an auto dealers group in Massachusetts after the state’s highest court ruled the group lacked standing to sue.
In Missouri, the MADA maintains that Tesla’s direct-to-consumer model harms dealers whose business depends on the state requiring all manufacturers to comply equally with state law. Some states, including Texas and Arizona, bar Tesla from selling cars directly to customers.
“We feel it’s a violation of the law,” MADA’s president and CEO, Doug Smith, said in a conference call with reporters last week, describing Tesla’s business model. “The law ... clearly states that a manufacturer cannot sell vehicles to consumers.”
Smith said his group’s opposition is not with Tesla, but how it sells cars.
“We’d love to see Teslas all over the road,” he said. “We’d just like them to sell through dealerships like any other (manufacturer).”
Tesla’s O’Connell said the dealers simply are looking to limit consumers’ ability to choose.
“The goal of both this lawsuit and anti-Tesla legislation is to create a distribution monopoly that will decrease competition, hurt consumer choice, and limit economic investment in Missouri,” he said.
Lisa Brown • 314-340-8127
@lisabrownstl on Twitter