Tesla Motors Inc. (NASDAQ: TSLA) is not allowed to sell directly to its consumers in more than a few states within the US

All 50 states in the U.S. have a set of laws in place that keep a check on the business relationship between automakers, dealers and other franchise functions. The state franchise laws keep a close eye on the circumstances that may lead to termination of various franchise arrangements, ascertain that no two dealers representing the same brands are too close and also restrict automakers from making direct sales to potential buyers.

These state laws offer more protection to dealers than manufacturers. Journal of Economic Perspectives revealed in its 2010 study that an overall effect of these laws ensures an increase in profits for car dealers. In light of this study, it is quite apparent why Tesla Motors Inc. (NASDAQ: TSLA) has encountered a few complications in their efforts to setup retail outlets.

Only four states in addition to District of Columbia, till last March, allowed Tesla Motors Inc. (NASDAQ: TSLA) to sell unlimited number of cars legally in company owned retail outlets. California, Nevada, New Hampshire and Washington were those four states.

The states of Colorado, New York, Pennsylvania and Virginia allowed for the sales to go ahead, but with certain conditions and restrictions on either number of cars being sold or number of stores that can be opened up within a state.

In June, three states decided to let Tesla Motors Inc. (NASDAQ: TSLA) sell its automobiles. North Carolina House of Representatives discarded the bill that called for a ban on sales in the state. In Minnesota, auto dealers gave up their efforts to pass a bill in the state legislature that asked for a ban on Tesla’s direct sales model. This opened up new doors for Tesla. Tesla also succeeded in changing the law that banned the company from selling automobiles in the state of Massachusetts.

Tesla Motors Inc. (NASDAQ: TSLA) has a store running in Florida as well as Georgia. It is in the process of opening another store in Connecticut. Other store locations listed on the company’s website include Hawaii, Illinois, Indiana, Missouri, Ohio, Oregon and Tennessee.

Arizona, Maryland, New Jersey and Texas are the four states that have stopped Tesla Motors Inc. (NASDAQ: TSLA) from selling cars directly to the customers. The company has built galleries in these four states where customers are offered to kick the tyres or maybe go for a test drive, but the company is prohibited to make a sale. Therefore, potential buyers can buy a car online or through a dealer.

There are 26 other states that neither have a Tesla Motors Inc. (NASDAQ: TSLA) retail store or a gallery.

The possibility of exemption of Tesla Motors Inc. (NASDAQ: TSLA) from franchise laws has stirred up a fear among car dealers of having too many companies selling directly to the customers; these could include even Chinese automakers that want to sell in the United States. In late 1990’s Ford Motor Co. (NYSE: F) and the previous owners of the existing General Motors Co. (NYSE: GM) came up with suggestions that will allow companies to sell directly to consumers. However, these ideas were not received by the dealers with a lot of enthusiasm and couldn’t get enough attention.

On Monday Tesla’s shares closed down more than 3.5% to $250.03 and continued to go down in Tuesday’s premarket trading. Over the last year their trade range had been between $116.10 and $291.42.