Tesla is suing North Dakota’s Department of Transportation after it has rejected its applications to open direct-to-consumer showrooms in the state.
The information was first revealed by The Bismarck Tribune, according to which the lawsuit was filed in August, with the first hearings scheduled for December.
Tesla’s applications to open stores in Bismarck and Fargo, filed in 2024, were denied because state law prohibits vehicle manufacturers from selling directly to consumers.
The state argues that this separation between manufacturers and dealerships is necessary to protect both franchise dealers and consumers.
Tesla, however, has appealed, claiming it should be exempt from the law since its sales model relies exclusively on direct-to-consumer sales throughout the United States.
Not a “Manufacturer”
The company argued that it does not technically meet the definition of a “manufacturer” because it does not sell new vehicles through third-party dealerships.
According to the lawsuit, North Dakota law defines a “manufacturer” as “any person who manufactures, assembles, or imports and sells new motor vehicles to new vehicle dealers for resale in the state.”
The company contends that even if it fits this definition, it should still be allowed to seek an exemption from the Department of Transportation, which permits manufacturers to operate a dealership if no independent dealer is available.
“Traditional motor vehicle manufacturers sell their vehicles through independent franchised dealers. Tesla, by contrast, sells its vehicles directly to customers throughout the United States,” the company wrote.
“As a result, Tesla has no franchised dealerships in any state,” the legal filings showed.
Assistant North Dakota Attorney General Michael Pitcher, however, argued that the exemptions in state law do not apply to Tesla.
They are intended only for temporary situations, such as when a manufacturer cannot immediately take over an existing dealership, in order to prevent market disruptions.
Tesla, by contrast, was seeking to establish its own permanent dealerships.
Unconstitutionality Claims
Tesla alleges that the Department of Transportation’s rejection violates the North Dakota Constitution, citing clauses that protect the “right to earn a livelihood” and the “right to equal protection.”
According to Tesla, North Dakota’s law unconstitutionally favors franchise dealerships.
“To the extent that the North Dakota Legislature or the Department seek to protect franchised dealerships from competition, that is not a reasonable legislative goal,” the filings read.
The Assistant Attorney General countered that establishing a franchise system is a legitimate way for the state Legislature to protect vehicle dealerships and does not infringe on any constitutional rights.
“North Dakota’s laws are not designed to shield dealers from competition per se, but from exploitation by manufacturers who could otherwise undercut them,” Pitcher wrote, adding that “Tesla, as a manufacturer, falls squarely within that concern.”
Direct Sales Ban in Other States
North Dakota isn’t the first state where Tesla has challenged dealership laws. The company has also filed petitions against similar direct-sales bans in Louisiana, Wisconsin, and several other states.
North Dakota and Louisiana have some of the lowest EV adoption rates, with electric vehicles accounting for just 1.3% and 1.4% of new car sales, respectively.
Only Mississippi is lower, at 1.2%.
By contrast, California — the state with the highest adoption rate — saw electric vehicles make up 29% of new car sales in the third quarter.
