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Let Tesla Sell Directly to Its Customers

There is a debate about how innovative are Tesla’s new cars, but the company is indeed trying to do something new in the way it sells them. Tesla wants to sell directly to consumers without the use of dealers. Unfortunately, however, many states are trying to prevent direct sales. These laws are outrageous exercises in economic protectionism in favor of special interests.

When it comes to keeping down the costs of distribution, a manufacturer is the consumer’s BFF. Both the manufacturer’s and the consumer’s interest is the same—having the most efficient and cost-effective form of distribution. An efficient distribution allows the manufacturer to sell more cars, because the total cost of the product is lower.  It also benefits the consumer, because the distribution is incidental to the enjoyment he or she gets from the product.

Some legislators argue that dealers are necessary because they can provide important services to consumers. But the manufacturer takes the level of service into account when deciding whether to sell directly.  Optimal service helps the manufacturer’s bottom line as well, because it gains a reputation for cars that are well serviced and thus last a long time. The manufacturer can choose to provide the needed services itself. It is an appropriate matter of business strategy  to decide against outsourcing product services no less than any other part of its operations.

If a state enacts legislation in favor of dealers, Tesla may sue to have it declared unconstitutional. One possible route of invalidation is the dormant Commerce Clause. But the state proposals at issue do not generally specify that a manufacturer must use an in-state dealer, and thus the legislation does not discriminate against out-of-state companies on its face. Nevertheless, certain strands of Supreme Court doctrine suggest that substantial discriminatory effects can prove constitutionally fatal.

A more novel line of attack is to argue that the legislation violates the Fourteenth Amendment because it is pure economic protectionism and thus without a rational basis. I have previously noted that some modern appellate courts have recently strengthened the rational basis test for economic legislation and have expressly held that economic protectionism is not a proper exercise of the police power. These cases have held in favor of very sympathetic plaintiffs, like monks making caskets, but the principles would be potentially applicable here.

In any event, legislators and governors should reject laws that impede direct sales. The Internet makes possible more efficient distribution methods than existed in the 1950s. Economic liberty allows consumers to reap the benefits of technological advances.

Reader Discussion

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on April 28, 2016 at 14:27:20 pm

Hey, how constitutional is it for Tesla to subsist on governmental subsidies for their well-to-do buyers.

I would say that Tesla is not a sympathetic client.

How about this?

You get to sell your cars directly (good) but no more government subsidies (bad).

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Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.