Electric car manufacturer Tesla, Inc. has faced dealership disputes in several US states as a result of franchise laws. Unlike other automakers, Tesla does not rely on franchised auto dealerships to sell vehicles and instead directly sells vehicles through its website and a network of company-owned stores. All 50 states have laws that limit or ban manufacturers from selling vehicles directly to customers, with many states requiring that new cars be sold only by franchised dealers.
Tesla maintains that to properly explain to consumers the advantages its cars have over vehicles with an internal combustion engine, it cannot rely on third-party dealerships to handle its sales. Tesla has also argued it is not subject to franchise laws because it has never had franchised dealers. Economists have characterized laws that require independent dealers to sell cars as a form of rent-seeking that extracts rents from manufacturers of cars and increases costs for consumers of cars while raising profits for car dealers.
Corporate strategy
Tesla has a 60% degree of vertical integration in 2016, according to Goldman Sachs. The integration includes its own sales channels and proprietary charging infrastructure, among others. The high degree is rare in the automotive industry, where companies typically focus on engine manufacturing and vehicle assembly, outsourcing 80% of components to suppliers while letting franchises serve as sales points.
Some of Tesla's stated goals are to increase the number and variety of electric vehicles (EVs) available to mainstream consumers by selling its own vehicles in company-owned showrooms and online. Tesla states that owning stores "creates an information loop from our customers straight into manufacturing and vehicle design". Tesla attempts to not make a profit on servicing cars.
Sales model , Tesla operates more than 130 stores and galleries in the United States, and has stores and galleries in 34 other countries. It sells vehicles through its owned showrooms and the internet.
Tesla has a low budget for marketing, and uses a referral program and word of mouth to attract buyers.
US dealerships and automotive dealership disputes , Tesla has stores and galleries where customers can buy vehicles, as well as from the Tesla website. The stores serve as showrooms that allow people to learn about the company and its vehicles. Some galleries are located in states with restrictive dealership protection laws which prevent discussing price, financing, and test drives, as well as other restrictions. In 2016, Tesla set up mobile-shipping-container "stores" and six Airstream travel trailers each pulled by a Model X, reaching areas not served by brick-and-mortar shops.
Tesla's strategy of direct customer sales and company-owned stores and service centers is different from the dealership model used by other manufacturers in the US vehicle marketplace. In the early 2010s, Tesla was the only manufacturer that sold cars directly to customers; all other automakers used independently owned franchised dealerships although some automakers provided online configuration and financing. Tesla maintains it cannot rely on third-party dealerships to handle its sales because dealerships do not properly explain the advantages its cars have over vehicles with an internal combustion engine. Tesla CEO Elon Musk said selling its vehicles through dealer networks would create a conflict of interest because they counter-sell the gasoline vehicles that make up the bulk of dealerships' sales and service income.
All 50 states and DC have laws that limit or ban manufacturers from selling vehicles directly to consumers, and although Tesla has no independent dealerships, dealership associations in multiple states have filed lawsuits against Tesla to prevent the company from selling cars. Among other states, North Carolina and New Hampshire sided with Tesla, while Virginia and Texas sided with dealers. Jurisdictions outside the United States do not have such laws protecting car dealerships.
Laws prohibiting direct auto sales arose in the United States in the 1930s, when manufacturers started using independently franchised dealerships to offload the tasks of selling and servicing vehicles. The laws have been actively defended into the 21st century and extend to online in-state sales. Such regulations protect dealerships from manufacturers opening their own dealerships and competing against resellers, which could be seen as an abuse of the manufacturer-franchise relationship. Critics view the laws as thwarting legitimate competitive pressure that benefits consumers, and some have described them as "protectionism", and "crony capitalism".Crane, Daniel A. "Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism" page 577-579. Iowa L. Rev. 101, no. 2 (2016): 573-607 . Size: 35 pages in 1 MegaByte
The Federal Trade Commission recommends allowing direct manufacturer sales, which a 2000 report by a Goldman Sachs analyst projected would save consumers an average of $2,225 on a $26,000 car. In May 2014, a report prepared by Maryann Keller and Kenneth Elias for the National Automobile Dealers Association claimed that franchises (such as offered by its members) offer better value for customers than direct sales.
Independent dealerships typically earn more money from service than from sales, so the lower maintenance requirements of electric vehicles can provide a financial incentive for selling gas-powered vehicles, to Tesla's disadvantage. Investigations by Consumer Reports and the Sierra Club found that independent dealers often could not answer questions about electric cars, did not provide information about government rebates, did not showcase the cars prominently, or let the batteries run out.
States with total direct sales bans
Alabama (also bans service centers) Alabama regards manufacturer-owned new motor vehicle stores and service centers as "unfair and deceptive trade practices". In August 2016, State Senator Tom Whatley introduced Senate Bill 22, assigned to the Senate Tourism and Marketing Committee, which would allow a manufacturer of alternative fuel vehicles to sell and lease its vehicles directly to the public. The bill died in committee.Alabama Senate Bill 22, 2016, 1st Special Session In August 2025, Tesla opened a service center in Birmingham. In July 2026, Tesla opened a store on the tribal lands of Poarch Band of Creek Indians in Wetumpkahttps://www.tesla.com/findus/location/store/435454, a strategy they have employed in Connecticut and New Mexico.https://www.thedrive.com/news/teslas-found-a-way-around-direct-sales-bans-by-putting-dealerships-on-tribal-lands
Arkansas Arkansas law prohibits manufacturers from owning dealerships. In April 2021, Governor Asa Hutchinson signed HB1922, which amended the existing franchise law to explicitly prohibit direct leasing.
Connecticut (allows direct leasing) Connecticut does not allow manufacturer direct sales, but does allow direct leasing. Tesla operated a gallery in Greenwich that the Connecticut Automotive Retailers Association shut down via a lawsuit. In March 2018, Tesla appealed the ruling to operate the Greenwich gallery as an unlicensed dealership, but later dropped the appeal. The gallery was shut down in March 2019. In December 2019, Tesla started offering leases at their showrooms which allowed them to provide test drives for customers discussing leases.
In 2015, 2016, 2017, and 2018, bills were introduced in the legislature to allow licensing electric vehicle manufacturers as dealers.After Four Years Of Trying, Tesla Hopes To Win Approval To Sell Cars In Connecticut, 10 Feb 2018
In March 2021, Connecticut state bill SB-127 (the EV Freedom Bill), that would allow all EV makers to sell directly to their customers, passed out of the General Assembly's Transportation Committee and awaited a vote by the full state house and senate. The Session Year 2022 bill was Senate Bill number 214. The bill was reported on favorably by the Transportation Committee on March 14, 2022 by a vote with 21 yeas to 14 nays, but never received a floor vote.
Tesla opened a store at the Mohegan Sun casino in late 2023, utilizing a similar tribal land loophole as in New Mexico.
Iowa Iowa law currently prohibits manufacturers from owning dealerships.
Kansas (also bans galleries) Kansas does not allow the sale of vehicles directly or indirectly without a franchise agreement with the manufacturer. This includes the display of vehicles in a showroom, thus banning galleries. Kansas does permit service centers, and one is planned for Lenexa. The city council granted its approval on April 19, 2022.
Louisiana Louisiana enacted a law in June 2017 that bans direct-to-consumer vehicle sales.Tesla says new law will prohibit direct sales in Louisiana, June 6, 2017, The Associated Press Louisiana permits service centers, with one in New Orleans. However, that service center may not be able to perform warranty repairs after Tesla had a lawsuit against Louisiana thrown out of federal court.
Nebraska Nebraska law prohibits auto manufacturer direct sales. In 2018, LB830 was introduced to change the law.Bill would welcome Tesla into Nebraska by allowing direct sale of cars, Lincoln Journal Star, Jan 30, 2018Tesla is knocking on Nebraska's door, hoping lawmakers will let it in, Cole Epley, Omaha World-Herald Bureau, Feb 1, 2018 In 2020, LB51 was introduced, also to this effect, but did not pass.
Tesla opened a service center in Lincoln in 2023, but LB891, introduced by Carolyn Bosn, would force it to close if passed in its original form. Negotiations are underway for a compromise amendment that would allow the service center to remain open even under LB891.
New Mexico (also bans service centers) 2006 New Mexico Statutes, Section 57-16-5-V prohibits manufacturers like Tesla from being licensed as a dealer and directly or indirectly performing warranty or other services. Despite Tesla owners' pleas to change the law, they still currently depend on Tesla facilities that are either on tribal land or out-of-state for Tesla sales and services.
In January 2019, the Public Affairs Committee approved the Tesla-friendly Senate Bill 243, but it died on the Senate Corporations and Transportation Committee calendar. House Bill 294 died in the House Commerce and Economic Development Committee.
In August 2021, Tesla opened their first store and service center in the state on Nambé Pueblo tribal land north of Santa Fe. Prior to this, Tesla owners in New Mexico were heavily reliant on mobile service. A second store and service center north of Albuquerque on Santa Ana Pueblo tribal land opened on June 1, 2023.
North Dakota In November 2025, after Tesla's applications for dealership licenses in Fargo and Bismarck were denied, Tesla sued North Dakota's Department of Transportation. North Dakota law only allows manufacturers to sell vehicles directly in temporary situations when no independent dealers are available.
Oklahoma Oklahoma bans direct sales by auto manufacturers. Legislation was introduced in February 2018 to allow it,OK SB1560 but it failed. State Representative Mike Dobrinski, a former automotive dealer himself, has made multiple attempts to expand this ban to include service centers, eventually resulting in HB2244 passing the Oklahoma House of Representatives on March 21, 2023.http://webserver1.lsb.state.ok.us/cf_pdf/2023-24%20ENGR/hB/HB2244%20ENGR.PDF Oklahoma House Bill 2244 However, HB2244 did not receive a floor vote in the Oklahoma Senate. Tesla has two facilities that would have been affected had this bill become law: one in Oklahoma City, the other in Tulsa. Dobrinski introduced three bills in the 2024 Oklahoma legislative session: HB3105, HB3104 and SB2022.
South Carolina (also bans service centers)