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TheStreet Open House

Tesla Takes a Hit From NJ Direct-Sale Ban

"He [Elon Musk] needs to stop and take a breath. If you're an Internet billionaire, maybe you think the world revolves around you, and the world springs from your laptop. Well, I got news for him. This is not a new law, Tesla is operating illegally, and as of April 1, they will be out of business unless they decide to open a franchise." -Jim Appleton, the president of the New Jersey Coalition of Automobile Retails, or NJ CAR.

"This Musk guy, he wants all the profits for himself. They want to go direct, which means no sales force. That's cutting out a lot of people. No way that's gonna fly." -Tom Dougherty, a 25-year veteran of the car salesman business who now works in sales at a high end vehicle dealership in Princeton, N.J.

NEW YORK (TheStreet) -- When the fourth-most-populated U.S. state says it's my way or the highway, you're going to take a hit on market share.

Jim Appleton is correct in saying the state of New Jersey's law of banning direct sales of cars to consumers has remained active since it's inception and is not a new law. In fact, it's rather old.

However, New Jersey's motor vehicle commission had issued two licenses to Tesla (TSLA) allowing the company to operate its own stores in New Jersey.

But now, as of April 1, New Jersey is enforcing the law for every car company selling in the state to go through a dealership -- forcing Tesla to either cooperate or drop all New Jersey sales. It's already having an effect on Tesla's stock, now around $217 and up nearly 44% for the year to date.

Here is my map detailing which states allow Tesla sales and which states have restrictions in place.

Interesting... Colorado has restrictions in place on the sale of Tesla vehicles, an environment-friendly car that could change the world for good yet have no restrictions on the sale of recreational and medical marijuana. [I just found that interesting and wanted to bring it up. I remain vanilla and don't have an opinion either way on this fact.]

So New Jersey, why the change of heart? You were all set to go with this "next generation" way of selling cars...

Here's a quote from an intense blog post on Tesla's Web site written by Musk explaining the situation:

On Tuesday, under pressure from the New Jersey auto dealer lobby to protect its monopoly, the New Jersey Motor Vehicle Commission, composed of political appointees of the Governor, ended your right to purchase vehicles at a manufacturer store within the state. Governor [Chris] Christie had promised that this would be put to a vote of the elected state legislature, which is the appropriate way to change the law. When it became apparent to the auto dealer lobby that this approach would not succeed, they cut a backroom deal with the Governor to circumvent the legislative process and pass a regulation that is fundamentally contrary to the intent of the law.

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