How Tesla Motors' Latest Lawsuit Could Transform Auto Sales

By Markets

A Tesla Motors store in California. A new lawsuit could give Tesla -- and other automakers -- the right to sell directly to consumers throughout the U.S. Image source: Tesla Motors.

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The latest move in Tesla Motors' (NASDAQ: TSLA) aggressive efforts to win the right to sell cars directly to customers? A push onto the Detroit giants' home turf -- with a new twist, one that could finally bring about the "disruption" long sought by the upstart Silicon Valley automaker.

Tesla is suing Michigan, but with a new twist

Tesla filed suit against the State of Michigan this past week, seeking to overturn the state's ban on direct sales by automakers. It's not unlike the suits that Tesla has filed in other states, seeking the right to sell its innovative electric cars through its website -- except that this time, Tesla filed the case in federal court, in hopes of getting a decision that could be applied across the country.

That's a new wrinkle in Tesla's strategy, which up until now has focused on state-by-state efforts to overturn or work around laws that stood in the way of its direct-sales model.

Nearly all new cars in the U.S. are sold via franchised dealerships rather than directly by the automakers. It's a business model that made sense a century ago, when automakers like Ford (NYSE: F) wanted to make their cars available in as many small towns as possible. Many of those franchise owners prospered and became important donors to state politicians, who in turn wrote laws that ensured the dealers' franchises were protected from competition by factory-owned stores.

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It's those laws that Tesla has been bumping up against around the country, and that it's been fighting for years -- with success. Right now, Michigan, Texas, Utah, and Connecticut are the only states in which Tesla has been unable to get official permission to sell directly to consumers.

Why Tesla is starting this fight now

Tesla is clearly hoping to win a legal precedent that would strike down any remaining barriers to its direct-sales model throughout the country, not just in Michigan.

Right now, Tesla is gearing up to begin production of its first mass-market model, the Model 3 sedan, (hopefully) next year. Winning a clear right to sell directly to U.S. consumers -- all U.S. consumers -- just as it has an affordable model coming to market would clearly be a big victory.

Why the implications go far beyond Tesla

A comprehensive Tesla legal victory that struck down laws protecting the franchised-dealer model around the country could also turn out to be a conundrum for the established automakers.

On the one hand, preserving good relationships with dealers is a very high priority for Ford and the other big automakers, for obvious reasons. But on the other hand, while their executives would never dare admit it in public, a world in which all automakers could sell directly to consumers could boost automakers' profits while giving buyers more choices and fewer hassles -- a win all around.

Except for the dealers, who will fight this as hard as they can. Stay tuned.

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John Rosevear owns shares of Ford. The Motley Fool owns shares of and recommends Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.