Delaware high court ruling allows Tesla dealerships

Tesla has yet to open a dealership in the First State, due to a longstanding law that stops the state’s auto titans from squeezing out small dealerships, but the Delaware Supreme Court has overturned that prohibition. | PHOTO COURTESY OF UNSPLASH

WILMINGTON – The Delaware Supreme Court flashed a bright green on Monday to the growing Tesla electric vehicle empire in the First State, allowing it to open dealerships for direct sales here.

The Supreme Court decision shifted gears in reversing an earlier Superior Court ruling which said that Tesla’s bid for a retail business license, first filed in 2019, violated the state’s Motor Vehicles Franchising Practices Act. The Supreme Court ruling brought to an apparent end Tesla’s four-year battle with the state.

In the ruling, Chief Justice Collins J. Seitz Jr. wrote, “We reverse the DMV Director’s decision and the Superior Court judgment and remand for further proceedings consistent with this opinion. The General Assembly enacted the Franchise Act to address the disparity in bargaining power which permitted new motor vehicle manufacturers to exert economic pressure over their franchises. Its definitions exclude Tesla and its direct sales model, where new electric cars are not sold through franchised dealers in Delaware.”

Tesla has direct dealerships in several states, including Maryland, Pennsylvania and New Jersey, but in Delaware presently only has an automotive display gallery at the Christiana Mall and a service center in Prices Corner, in addition to its ubiquitous charging stations. Customers here for Tesla’s vehicles presently have to order them online and have it delivered, or drive to another state, likely slowing its sales in Delaware.

“The Delaware Division of Motor Vehicles’ decision to deny Tesla Inc.’s dealership application was upheld by the Superior Court of Delaware based upon its interpretation of the Delaware Motor Vehicle Franchising Practices Act,” DelDOT director of community relations, C.R. McLeod said after the ruling. “The Supreme Court of Delaware interpreted the issue differently, and we will abide by the court’s decision and proceed to issue Tesla Inc. a dealership license.”

For the state’s automotive dealerships, however, the ruling was unwelcomed.

“We are disappointed in the Supreme Court’s decision to not apply our state’s prior laws to Tesla and instead argue that they exist outside of our current auto framework,” said Chip Sheridan, on behalf of the Delaware Automobile and Truck Dealers Association, which advocates for state dealerships. “We found Tesla’s argument that they should be able to exist outside of current laws significantly less persuasive than the Court did.  We continue to feel that if Tesla would like to supply vehicles in the state of Delaware that they should follow all of the laws as they currently exist.”

“The Supreme Court ignored the fundamental reason that franchise laws exist in states all across this country,” Sheridan continued. “It is not to protect a few dealers from manufacturers that control their fate. It is because the franchise system is more beneficial to the citizens of the state.” 

Tesla had fought for its right to sell cars in the state both within the legal system and in the court of public opinion. After the DMV turned down its application in April 2021, the California-based company used its “Engage Tesla” social platform to initiate a letter-writing campaign by Tesla owners to Gov. John Carney to protest the state’s decision. At that time, Tesla posted online that it “had never sold through franchised dealers, and our strong interpretation is that we are eligible to sell directly under Delaware Law for that reason.”

As it turned out, the case hinged on the definition of an automobile manufacturer as defined by the Franchise Act.

“When the definitions are read together, a ‘manufacturer’ under the Franchise Act manufactures or assembles ‘new motor vehicles’ that have been sold to a ‘new motor vehicle dealer’ who holds ‘a valid sales and service agreement, franchise, or contract granted by the manufacturer or distributor for the retail sale.’ Tesla’s electric cars will not be sold to a dealer that holds a valid sales contract by Tesla, and therefore it is not a ‘manufacturer,’” Seitz wrote.

As is its policy, Tesla did not respond to requests for comments.

Tesla CEO and world’s richest man Elon Musk’s last venture into the Delaware legal system was stopped short last October when the entrepreneur decided to go through with his purchase of Twitter and thus avoid a court battle that he was expected to lose.

Two years ago, he won a high-profile lawsuit against Tesla shareholders over the company’s acquisition of a solar panel company, but he continues to face more lawsuits here from shareholders of his various companies.