Tesla Is The Clear Winner in the Battle With Michigan (Seyfarth’s Future of Automotive Series)

After three years of litigation, two appeals to the Sixth Circuit, and with a February 4, 2020 trial date looming, electric automobile manufacturer Tesla and the State of Michigan, on January 22, 2020, settled their dispute over a state law that prohibits Tesla from engaging in direct sales of vehicles in Michigan or the servicing of those vehicles. Although the litigation ended in a draw, Michigan consumers are now able to buy Tesla vehicles and have them serviced in that state. Longer term, the case provides a roadmap for Tesla and other manufacturers seeking alternatives to the traditional dealer network distribution model, and is a blow to efforts by dealer groups to enact state laws to block alternative methods of distribution.

At issue in the case, captioned Tesla, Inc. v. Benson et al., US District Court for the Western District of Michigan, Case No. 16-CV-1158, was Tesla’s constitutional challenge to Michigan’s so-called “Anti-Tesla” law, enacted in 2014, that barred manufacturers from owning or operating a motor vehicle dealer or repair facility. M.C.L. § 445.1574(1). Michigan is among a number of states that have enacted laws banning manufacturers from engaging in the direct sale and servicing of vehicles to consumers; these prohibitions—many of which were enacted to protect pre-existing dealer networks from manufacturers adopting dual distribution models—have in recent years been used to block new market entrants like Tesla who, from inception, sought to vertically integrate manufacturing and distribution. Tesla filed suit in 2016, arguing that the 2014 state law was protectionist and violated the US Constitution on due process, equal protection, and commerce clause grounds. Much of the ensuing litigation in the case focused on Tesla’s attempts to subpoena documents from Michigan’s dealers and dealer association regarding their lobbying efforts to get the Anti-Tesla law passed.

On January 22, 2020, Tesla and the Michigan Attorney General filed a joint stipulation of dismissal[1] agreeing that:

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