Lucid’s Texas lawsuit could increase its chances in the EV market

  • EV startups are selling their flagship products through direct-to-consumer models.
  • This has long rubbed states and old dealer associations in the wrong direction.
  • The resulting litigation could slow key deliveries for EV startups.

Lucid Motors is the latest electric vehicle startup to enter direct sales litigation, suing Texas for the right to open a store in the state instead of selling cars through a dealership.

Lucid’s move mimics Tesla’s playbook for selling direct to customers. It’s also a sign that there could be more legal battles for other up-and-coming EV manufacturers like Rivian and Fisker.

Following in Tesla’s footsteps, most new EV companies are opting for direct selling models and forgoing the dealerships they view as unnecessary third parties. Lucid says its “studios” — where customers can see products and take test drives — eliminate the haggling that customers often experience at dealerships.

But every state has its own laws that require cars to be sold through dealerships, and every automaker hoping to run their own business (whether physical or online) must individually fight each state’s franchise laws and powerful dealer lobbyists .

Tesla has long been involved in such litigation and has made significant progress with various workarounds and state-level exemptions.

At a time when legacy automakers’ products are coming to market quickly, Lucid’s recent offering in Texas may indicate that the startup is in a rush to land more orders, expand its footprint, and capture its crucial EV market share to secure.

Uncertainty over how and where the startups will sell their vehicles is making their uphill battle for market share all the more difficult, said Jessica Caldwell, an automotive analyst at Edmunds.

The result, Caldwell told Insider, is that the results of these efforts to sell direct to customers will create winners and losers among EV startups.

“Those who get through this will have better prospects in the long term,” she said.

The latest from Lucid

In the latest standoff between states, dealers and EV startups, Lucid last week sued the Texas Department of Motor Vehicles for the right to open a store, saying the state is preventing it, Bloomberg first reported.

“This ban is extremely irrational: it hurts competition, limits consumer choice, and increases costs and inconvenience, with no reciprocal value,” the company wrote in its lawsuit.

Rivian has launched its own direct-selling crusades, most recently in Georgia, where the startup is building an assembly plant expected to open in 2024.

What consumers can expect

Last year, Tesla, Rivian and Lucid joined forces to push for bills that would allow direct sales in eight states. Many of these efforts are still ongoing, while Rivian, Lucid, and Tesla continue to sell vehicles remotely. Meanwhile, the startups are trying to set up service centers and other brick-and-mortar businesses that don’t specialize in sales.

Despite the legal woes, EV startups are going full steam ahead to get straight to the consumer. And that can rub off even on Ford.

Legacy automakers have shown signs of mimicking the direct-sales model, setting up online pre-orders for EV launches similar to Tesla’s. Industry executives have said they have no plans to do away with the retailer model — instead changing the retailer’s role to a delivery specialist.

Those efforts have been accelerated by an industry-wide shift to factory orders as the pandemic and supply chain issues limit new vehicle inventory to dealer lots.

“We have to go at a non-negotiated price. We need to go 100% online,” Ford CEO Jim Farley said at an investor conference earlier this year.

He targeted Tesla at the start of production of the electric F-150 Lightning earlier this year.

“Our traders can do that, but the standards will be brutal – they will be very different than they are today,” he said. “We’re working with our dealers as we talk about this.”