By Kirsten Korosec
FORTUNE -- Tesla Motors CEO Elon Musk accused New Jersey Gov. Chris Christie on Friday of cutting a "backroom deal" with the state's auto dealer lobby to push through a rule change that effectively bars the electric car company from selling vehicles directly to consumers.
In response to the rule change, Tesla Motors (TSLA) will convert its two sales centers into "galleries" after April 1, Musk wrote in a comprehensive post on the company's blog.
Consumers will be allowed to see the car and ask questions, but staff will not be able to discuss price or complete a sale in the store. Interested buyers can still purchase Tesla's Model S sedan at its Manhattan store and order vehicles from New Jersey for delivery via the company's website.
Tesla Motors is also considering legal action to open sales back up in the state, Musk wrote.
On Tuesday, the New Jersey Motor Vehicle Commission amended a rule to prevent auto manufacturers from selling cars directly to consumers. The rule change, which was approved in a 6-0 vote, was made to "clarify our regulations to conform to state statute," said NJMVC spokeswoman Elyse Coffey.
Musk insists Gov. Christie promised the issue would be put to a vote before the state legislature, not a commission comprised of political appointees. Musk said the regulation is "fundamentally contrary to the intent of the law."
A spokesman with Gov. Christie's office says since Tesla first began operating in New Jersey one year ago, it was made clear that the company would need to work with the legislature on a bill to establish new direct-sales operations under New Jersey law.
"This administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation and Tesla has been aware of this position since the beginning," spokesman Kevin Roberts said in an e-mail to Fortune.
The New Jersey Coalition of Automotive Retailers argues the regulation change conforms to state law, which was originally enacted to serve the public interest. The lobby group says Tesla's factory-model creates a "vertical monopoly and limits competition" and places the "fox in the charge of the chicken coop" as well as limits consumer access to a qualified, independent source for warranty and safety recall service.
"Unless they are referring to the mafia version of 'protection,' this is obviously untrue," Musk wrote.
Tesla Motors' business model is a departure from the status quo in the auto industry, in which manufacturers sell vehicles using franchised dealers.
"There are companies out there that do sell specific niche vehicles via direct sales," said John Gartner, research director of smart transportation at Navigant Research. "But this is the first time someone has tried to be a mass marketer of vehicles through this model."
Tesla is determined to use the direct sales model largely because the company believes that dealers have a fundamental conflict of interest between promoting gasoline cars, which make up nearly all of their revenue, and electric cars, which constitute virtually none, Musk wrote.
Dealers aren't incentivized to sell EVs, Musk argued, because their new technology requires additional employee training and less maintenance -- critical, because most dealer profits are made by servicing vehicles. "Inevitably, they revert to selling what's easy and it is game over for the new company," Musk wrote.
Other electric car startup companies, such as Fisker and Coda, tried to use the auto dealer system. All failed, Musk wrote.
Even incumbent automakers have had difficulty compelling dealers to sell electric vehicles. Cadillac, owned by General Motors (GM), has had its own problems motivating dealers to sell its luxury ELR plug-in hybrid, the brand's first such vehicle. Nearly half of Cadillac's 940 dealers in the U.S. decided not to sell the 2014 ELR, according to a February Edmunds report.
About 94,000 electric vehicles were sold in the U.S. in 2013, Gartner said. Two to three percent of those U.S. EV sales were in New Jersey, making it the tenth-largest state in terms of electric vehicle purchases, he added.
"New Jersey is a reasonably large market, and while it's not clear what percentage of those sales were from Tesla, they definitely had a presence," Gartner said. "At least for now, it closes one window [of opportunity] for them -- an important one."
The electric automaker is supposed to usher in the future of cars, but every overly magnified misstep is working against it.
FORTUNE -- Elon Musk, chief executive of the young electric automaker Tesla Motors (TSLA), can't catch a break.
Early last year, Tesla came under fire by a New York Times writer for producing vehicles that weren't up to the difficulties of driving in a winter in the northeastern U.S. With his company's MOREAndrew Nusca - Jan 14, 2014 4:44 PM ET
The price of batteries could drop, making the gap between electric and conventional cars much smaller. Will it curb range anxiety?
By Brian Dumaine, senior editor-at-large
FORTUNE -- Despite rumblings in the press, it's not time yet to give up on the electric car. Currently 14 plug-in models are available from eight automotive manufacturers including the Tesla S (TSLA), the GM Volt (GM), and the Nissan Leaf (NSANY). But sales have MORENov 4, 2013 5:00 AM ET
It's a brave new world for the future of autos: Electric cars will finally take off and drive themselves -- but don't say good-bye quite yet to fossil fuels.
By Anne VanderMey, reporter
FORTUNE -- While we're not going to see flying cars for a long, long while, the global automobile industry is indeed undergoing an epic transformation. The rising price of gas, stricter mileage requirements, and concerns about global warming are MOREApr 2, 2012 5:00 AM ET
FORTUNE -- In March, the U.S. Senate narrowly defeated a bill that would have provided billions of dollars in tax credits to boost deployment of natural-gas-powered vehicles. That won't stop billionaire energy magnate T. Boone Pickens, who championed the plan. He still believes natural gas is the best way to help America reduce its dependence on foreign oil. Some 112,000 natural-gas vehicles -- mostly trucks and buses -- already occupy MOREApr 2, 2012 5:00 AM ET
FORTUNE -- Despite rising gas prices, all-electric cars haven't sold as well as manufacturers had hoped. Range anxiety, a scarcity of charging stations, and the high cost of lithium-ion batteries have turned off many consumers. Says Mike Omotoso, a senior manager at the research firm LMC Automotive: "When families look at the big picture, gas-powered cars are still a lot cheaper than electric ones."
But the landscape is changing. The number MOREApr 2, 2012 5:00 AM ET
FORTUNE -- The global auto market is huge -- some 1 billion vehicles ply the roads today. Electrics and hybrids constitute only a small fraction of the total, and it will be decades -- if ever -- before they become a dominant technology. In the meantime, engineers are boosting the efficiency of gasoline and diesel engines to meet increasingly strict mileage standards. In the U.S. an automaker's fleet must average MOREApr 2, 2012 5:00 AM ET
Both of the green autos have been on the market for almost a year now, but only one will stay on the road.
By Alex Taylor III, senior-editor-at-large
FORTUNE -- Americans love a rivalry, whether it is Dunkin' Donuts vs. Starbucks, or the Yankees vs. the Red Sox. So it is not surprising that the simultaneous launch of the Chevy Volt and the Nissan Leaf late last year built anticipation for a MORESep 15, 2011 5:00 AM ET
By Brian Dumaine, assistant managing editor
Chinese automakers have yet to crack the American market -- the quality and safety of their gasoline cars (never mind their electrics) don't pass muster in the U.S. One American entrepreneur, however, sees an opportunity to cash in on China's expertise in lithium-ion batteries and cheap manufacturing. Kevin Czinger, the CEO of startup Coda Automotive and a former VC and Goldman Sachs (GS) banker, has MOREOct 19, 2010 3:00 AM ET
By Brian Dumaine, assistant managing editor
Faced with scarce oil supplies and polluted cities, Beijing has ordered its booming auto industry to make a great leap forward in technology.
If you want to get a sense of just how car-crazy China is today, visit Chengdu, a booming city of 5.3 million in the southwestern part of the country. On a crisp Saturday recently, tens of thousands of eager new auto MOREOct 19, 2010 3:00 AM ET
|Apple shares soar on increased buyback|
|Many low-wage workers not protected by minimum wage|
|Stocks: The win streak is over|
|HBO shows coming to Amazon ... not Netflix|
|Facebook profit triples on mobile growth|