Greg Gardner

Detroit Free Press

DETROIT -- Michigan Gov. Rick Snyder, who has boasted of makingthe state more hospitable for entrepreneurs, has until Tuesday to sign or veto a bill that would prevent upstart electric vehicle maker Tesla Motors from selling cars in the state through its own stores and not through a traditional dealership network.

Michigan law requires automakers to sell through franchised dealers. That law didn't specifically mention Tesla, which started in 2003 and operates from a headquarters in Palo Alto, Calif., and from a former General Motors-Toyota plant in nearby Fremont.

Last week, both houses of the Legislature passed a bill, backed by the Michigan Auto Dealers Association, that would require all automakers to sell through franchised dealers.

"One of the things that was added to the bill was a section that states this law applies to all manufacturers. There's no creation of new rules," said Terry Burns, executive vice president of the MADA. "If a manufacturer wants to come in and sell cars in the state of Michigan, they should probably follow Michigan law."

Todd Maron, Tesla's general counsel, said the Michigan bill goes beyond requiring sales through a franchised dealer to prohibit the use of a gallery to simply display cars and communicate in person with consumers.

"People don't introduce bills unless they intend to change the law," Maron said. "Secondly, people don't sneak language in at the last minute unless they know it will be consequential."

Dealers have tolerated and learned to cooperate with online car shopping services such as Edmunds.com and TrueCar.com. But a manufacturer who bypasses the traditional franchise system to sell directly, either in physical stores or online, is a threat, even a low-volume automaker like Tesla.

"The market will eventually push that in that direction," said Christie Nordhielm, associate professor of business at the University of Michigan's Ross School of Business. "Rule one of distribution is there's only one customer, and that is the consumer. Everyone else is a middle man."

Tesla has been selling through stores or galleries mostly in upscale shopping malls along the east and west coasts and in Pennsylvania, Ohio, Indiana and Illinois. The company's website shows a network of 60 locations in 23 states, but some of those can't sell directly. The company takes orders online. That approach undermines how franchisees have sold vehicles for decades, and they are fighting to stop Elon Musk, Tesla's cofounder and CEO, from establishing his own retail model.

Musk wants to sell cars directly and has been fighting this legislative battle on a state-by-state basis. Specific language varies from one state to another, but more than half the 50 states have similar franchise laws to Michigan that prohibit manufacturers from competing with their franchised dealers.

Texas, Arizona, Colorado, North Carolina and Virginia have so far prevented Tesla from selling inside their borders, although the company displays cars in a handful of locations in Texas and Virginia. Tesla has won court cases and opened stores in Massachusetts, Minnesota and New York.

Last month, the Supreme Judicial Court of Massachusetts ruled that Tesla can keep selling from a shopping mall in the Boston suburb of Natick next to stores selling apparel, jewelry and perfume.

While Tesla does not have a store in Michigan, it would like to open at least a gallery soon, said Diarmuid O'Connell, vice president of business development. There are 100 Tesla Model Ses registered to Michigan residents who either bought them online or drove to a store in Illinois, Indiana or Ohio.

Next year the company plans to introduce the Model X, a more versatile and affordable alternative to its pricey Model S, which starts at about $75,000 and can run well above $100,000.