Tesla Inc. is dropping one controversial retail model in favor of another.

The disruptive California electric vehicle maker said last week that it will close most of its 120 factory-owned stores — a distribution concept that has challenged the traditional U.S. retail system for years. And in their place, Tesla will move to online sales only.

The new plan is already raising questions. Unclear is how state motor vehicle rules will respond to an automaker selling vehicles online, direct to consumers, without local stores or service centers.

Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, labeled Tesla's online plan "not a well- considered business strategy."

"The motor vehicle licensing and franchise laws in New Jersey seek to promote investment in an extensive network of independent, neighborhood new-car dealers," Appleton wrote in an email to Automotive News.

"Regulators want to know who is doing business, extending credit, taking personal information and conducting highly sensitive financial transactions in their state," he said.

Don Hall, CEO of the Virginia Automobile Dealers Association, said he has a problem with Tesla's online selling plan. Virginia's franchise law requires a company to have a physical presence in the state to sell online, he said.

Tesla CEO Elon Musk "is going to have problems in a lot of states from a licensing standpoint," Hall said in an interview Friday, March 1.