The Regulation Nobody Talks About

The dealership is not the problem. The law that protects it from ever having to change is.

Every serious conversation about accelerating EV adoption in the United States eventually circles back to the same cluster of obstacles: range anxiety, charging infrastructure, battery cost, consumer education. These are real. They are also, increasingly, being solved — by engineering, by investment, by market pressure. Battery costs have fallen 97% since 2010. The national charging network is expanding. Range per charge for mainstream vehicles crossed 300 miles years ago.

What isn't being solved — what is barely being discussed in mainstream policy coverage — is the legal architecture that controls how those vehicles reach the consumer. Dealer franchise law is the regulatory chokepoint that determines who can sell an EV, how they can sell it, and what incentives the person selling it has to actually close the deal. It was written in the 1950s. It was designed to protect a specific kind of business relationship that made sense when manufacturers were large and dealers were small. It has been weaponized, state by state, to prevent the distribution model that EVs require from ever being deployed at scale.

Understanding it requires understanding one number: the service department.

Where Dealers Actually Make Their Money

The popular image of a car dealer is someone who makes money selling cars. That is not quite accurate. A typical franchised new-car dealership in the United States earns approximately $1,500 to $2,000 in front-end gross profit on a new vehicle sale — and that number has been under sustained pressure from internet pricing transparency for twenty years. The vehicle sale itself is close to a loss-leader. It puts a customer in the service lane.

The service department is where the margin lives. A well-run dealership service department generates 50% or more of total dealership profit on 10 to 15% of floor space. The lifetime service value of a typical internal combustion vehicle — oil changes, brake jobs, transmission service, timing belt replacements, exhaust work, coolant flushes, spark plugs, fuel injector cleaning — runs $3,000 to $6,000 over the ownership period, all of it captured by the selling dealer if they retain the relationship.

Now consider what an EV does to that model. Battery electric vehicles have approximately 20 moving parts in their drivetrain. A comparable internal combustion vehicle has approximately 2,000. There is no oil to change. No transmission fluid. No timing belt. No spark plugs. No fuel injectors. No exhaust system. The brake pads last significantly longer because regenerative braking does most of the deceleration work. Consumer Reports and J.D. Power data consistently show that EV owners spend 30 to 40% less on maintenance and unscheduled repairs than ICE vehicle owners over the same ownership period.

That 30 to 40% is not abstract. On a dealership that earns 55% of its gross profit from service, a portfolio shift toward EVs is an existential revenue problem. A dealer who sells you an EV is not just making a smaller sale today. They are writing down the value of their service department for the next eight years.

The Franchise Law Architecture

Dealer franchise laws exist in all fifty states. They vary in specifics but share a common structure: they create a protected legal relationship between a manufacturer and its authorized dealer network, and they use that relationship as a barrier against both manufacturer encroachment and new distribution models. The core provisions, in most states, do the following:

Prevent manufacturers from competing with their own dealers. Ford cannot open a Ford store across the street from a Ford dealer. General Motors cannot sell directly to a consumer in a state where it has an authorized dealer. The manufacturer built the product, holds the brand, and controls the specifications — and is legally prohibited from selling it directly to the person who wants to buy it.

Require manufacturer approval for dealer termination. Terminating a franchise agreement requires either dealer consent or state regulatory approval, often following a formal hearing process. Manufacturers cannot simply realign their dealer networks in response to changing market conditions. A dealer who refuses to invest in EV infrastructure, train EV-certified technicians, or stock EV inventory cannot easily be replaced with one who will.

Restrict new entrants in protected territories. Dealers hold geographic exclusivity. A new entrant — including a new EV brand with a direct-sales model — faces a legal challenge in every state where an existing dealer claims competitive injury. The threshold for standing is low. The process is expensive and slow.

These provisions were designed in the 1950s and 1960s to address a real problem: manufacturers in the postwar period were large, well-capitalized, and capable of bullying small independent dealers into unfavorable terms or simply displacing them entirely. The franchise laws created a floor of protection that gave dealers the stability to invest in facilities, inventory, and staff. The intent was reasonable. The mechanism, frozen in place for seventy years, has become a different instrument entirely.

The Tesla Fight, State by State

Tesla was the first manufacturer to run directly into the franchise law wall, and its decade-long state-by-state legal battle is the clearest illustration of what the law actually does in practice. Tesla's model — company-owned stores, direct online sales, no franchise dealers — is fundamentally incompatible with the franchise protection statutes that most states have on the books. The fight has been waged separately in each state, with wildly inconsistent outcomes.

The Tesla case is instructive precisely because Tesla had no legacy dealer network. There was no franchise relationship to protect, no territorial exclusivity to defend, no dealer waiting at the end of a franchise agreement. The opposition came entirely from existing dealers of other brands who argued competitive injury — that a manufacturer-direct store in their market harmed their business of selling completely different products made by completely different companies.

In most states, that argument was sufficient to block or heavily restrict direct sales. The franchise laws were not written to prevent competitive harm from direct-selling manufacturers in the abstract. They were written to protect dealers from their own manufacturer. They have been interpreted and applied to prevent any distribution model that bypasses the dealer, regardless of whether a franchise relationship exists.

The Principal-Agent Problem This Creates

Franchise law produces a specific and well-documented principal-agent misalignment in EV sales. The manufacturer — Ford, GM, Stellantis, Hyundai, Volkswagen — has made multi-billion dollar commitments to electrification. The federal government has structured tax credits, infrastructure investment, and fuel economy standards around EV adoption. Both have strong incentives to see EV sales volume grow.

The dealer has a different incentive structure entirely. The front-end margin on an EV sale is similar to an ICE sale. The back-end service revenue is substantially lower. The consumer education burden is higher — EVs require more explanation, more test drive time, more conversation about charging. The floor plan financing is more expensive because EVs sit on lots longer. And the manufacturer, under franchise law, cannot compel the dealer to prioritize EVs, invest in charging infrastructure, hire EV-trained technicians, or maintain adequate EV inventory.

Studies of dealer behavior during the early EV adoption phase have found consistent patterns: EVs are less likely to be on the lot and more likely to require a custom order. Salespeople are less knowledgeable about EV features, range, and charging than about comparable ICE vehicles. Consumers who express interest in EVs are more likely to be shown ICE alternatives. These are not individual failures of professionalism. They are the rational output of an incentive system that points in a different direction than the policy goal.

The Problem They're Already Complaining About

Here is the part of the dealer's argument that doesn't get examined closely enough: the service department they are protecting is already failing.

Automotive technician shortages have reached a level that the industry's own trade organizations describe as a crisis. The Bureau of Labor Statistics projects a shortage of over 100,000 automotive technicians by 2026. Dealerships across the country are running service departments at or beyond capacity — bays backed up weeks out, customer satisfaction scores for service declining, repair orders sitting in queue because there is nobody qualified to touch them. The problem is not demand. Demand for service is robust. The problem is that there are not enough trained hands to do the work.

The work that is consuming those hands disproportionately is the high-volume, low-margin routine maintenance that ICE vehicles generate in abundance: oil changes, fluid flushes, brake service, belt replacements. These jobs keep the bays full. They also keep the bays full of work that pays less per hour than the complex diagnostic and repair work that technicians trained for and that commands higher labor rates. A service department that is overwhelmed with oil changes is a service department that is turning away transmission rebuilds.

A customer base that shifts toward EVs reduces exactly that load. Not to zero — EVs still need tires, brakes, suspension work, software diagnostics, battery thermal management inspection, and occasional high-voltage system service. But the routine commodity maintenance that fills bays without filling margins largely disappears. The same technician count serves more vehicles. The work that remains is more complex, more diagnostic, and more profitable per bay hour. The customer wait times that are currently driving service satisfaction scores into the floor get shorter.

There is a version of this story where EVs are not the enemy of the dealer service department but its salvation. A dealership that builds genuine EV service competency — trained high-voltage technicians, battery diagnostic capability, software update infrastructure — captures a service relationship that cannot easily be replicated by a quick-lube chain or an independent shop. The technical barrier to entry for EV service is higher than for ICE service. The dealer who invests in it early owns a defensible position. The dealer who resists the transition until forced is the dealer who will eventually be competing for routine tire rotations with every independent in the zip code.

The franchise lobby's current posture — protect ICE service revenue, resist EV adoption, delay the transition — is a strategy that trades a long-term defensible position for a short-term revenue floor that is already eroding. The technician shortage is not going to get better while the vehicles getting more complex. The service backlog is not going to clear while the bay mix stays the same. The dealers who are loudest about protecting their service business from EVs are, in many cases, the same dealers who are loudest about not being able to hire enough technicians to service the ICE vehicles they already have.

They are describing the problem. They are resisting the solution. That contradiction deserves to be named.

What Reform Actually Looks Like

Dealer franchise reform is not a simple proposition. The dealer network represents an enormous installed base of local business relationships, employment, and community investment. There are approximately 18,000 franchised new-car dealerships in the United States, employing over one million people. The political constituency for protecting them is real, well-organized, and present in every legislative district in the country. The National Automobile Dealers Association is one of the most effective lobbying organizations in Washington.

Wholesale abolition of franchise law is not a serious near-term policy option, and probably shouldn't be. The protection it provides against genuine manufacturer abuse of small businesses has value. The question is how to restructure the law so that the protection it provides does not come at the cost of blocking the distribution models that EVs require.

There are three reform pathways worth taking seriously:

EV-specific distribution carve-outs. Several states have created carve-outs permitting direct sales for manufacturers without an existing dealer network in the state — which is how Tesla gained access to New York and Florida. The limitation is that this approach doesn't help legacy OEMs who want to develop direct or hybrid distribution models for their EV lines alongside their existing dealer relationships. Ford cannot open a direct Ford EV store in Michigan under current law regardless of what Tesla is permitted to do.

Mandatory EV investment requirements as a condition of franchise renewal. Some states are exploring requirements that dealers must meet minimum EV certification standards — trained technicians, charging infrastructure, minimum inventory levels — to retain their franchise agreement. This works within the existing franchise structure rather than around it, and addresses the service competence problem directly. The challenge is enforcement: manufacturers are reluctant to terminate dealers for non-compliance when the termination process itself is so legally costly.

Federal preemption. The cleanest structural solution — and the least politically viable — would be federal legislation establishing a national framework for EV distribution that preempts state franchise law for battery electric vehicles. The precedent exists: federal law routinely preempts state commercial regulation when there is a compelling national interest. The argument that an orderly transition to EVs is a matter of national strategic interest — supply chain security, emissions, energy independence — is not weak. The political path through fifty state dealer lobbying organizations is.

The Michigan Problem

I write this from Detroit. The irony is not lost on me that the state where the franchise protection is strongest, where the franchise lobby is most entrenched, and where the legacy OEMs have the deepest political relationships, is also the state that is most directly exposed to what happens if the EV transition fails. Michigan's economy is the automotive economy. The jobs, the tax base, the supply chain, the engineering talent, the manufacturing infrastructure — all of it is tied to whether American OEMs succeed in electrification.

The franchise law that Michigan has maintained, at the insistence of a dealer lobby that employs a fraction of the workers that the OEMs employ, is an obstacle to the OEMs succeeding. Ford and GM cannot develop the direct consumer relationships, the data loops, and the distribution flexibility that Tesla has built into its model — not because of engineering limitations, not because of capital constraints, but because Michigan law prohibits it. The state is protecting a business model that works against the industry the state depends on.

That is not a stable equilibrium. Either the law changes, or the industry transforms in ways that make the protection irrelevant — because the volume migrates to brands that are not subject to it.

The Argument No One Is Making Loudly Enough

Every serious EV policy discussion focuses on supply — on batteries, on charging, on manufacturing capacity, on material supply chains. The battery supply chain series on this site is a four-part investigation into exactly those constraints. They are real and they matter.

But supply-side constraints that get solved arrive at a distribution system that is structurally misaligned with the product being delivered. You can build the best EV in the world, source it from a cost-competitive domestic supply chain, price it competitively, and qualify it for a federal tax credit — and still watch adoption lag because the person standing between the manufacturer and the consumer has a financial incentive to sell something else, and a legal architecture that ensures the manufacturer cannot route around them.

Dealer franchise law reform is not a politically comfortable argument. It puts you in opposition to a well-organized constituency with a legitimate historical grievance and real community relationships. It is also the argument that nobody making serious EV policy can afford to keep avoiding. The supply chain is being fixed. The technology is being developed. The money is being spent.

The seventy-year-old law written to protect a different business in a different era is sitting at the end of that pipeline, working exactly as designed. That is the problem that nobody talks about. It is time to start talking about it.