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Tesla Motors to Defend Against Virginia Dealers

By Evan Niu, CFA - Mar 11, 2016 at 12:20PM

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The latest episode in the automaker's war on dealers.

Image source: Tesla.

What happened?
Earlier this week, the Virginia Automobile Dealers Association, or VADA, filed suit against electric-auto maker Tesla Motors (TSLA 1.24%) and the state of Virginia, seeking to block Tesla from opening a second store in Virginia. VADA says that a 2013 agreement with Tesla precluded the company from opening more than one store. Tesla operates one store in Tysons Corner, a relatively affluent area of Northern Virginia.

Tesla has responded and says it will "vigorously defend" itself from the suit, saying it is "entirely without merit." Tesla's interpretation is that the 2013 agreement does not block it from opening additional dealerships.

Does it matter?
This is but the latest skirmish in Tesla's ongoing war against the dealer model. The company has long maintained that the dealer model would not be economically viable for Tesla, due to conflicts of interests that dealers have with selling gas-powered cars while relying heavily on profits from service. National and statewide dealer associations often attack Tesla for not allowing them to sell its vehicles, and aggressively attempt to block Tesla.

The news comes shortly after two bills were tabled in Indiana and Utah. The Indiana bill would have forced Tesla to either work with a franchised dealer or be pushed out of the state. Tesla is not currently able to sell directly in Utah, and believed that a recently proposed bill to allow it to included many provisions that were overall net negative.

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