Washington State Allows Direct Sales of Electric Vehicles

A new statute in Washington state allows certain manufacturers of electric vehicles to sell their vehicles directly to consumers, rather than through independent dealers.  The law, passed as SB 6354, makes a meaningful change to the state’s automotive dealer-franchise framework through a carefully crafted exception.  It allows a manufacturer to own, operate, or control a dealership selling its own vehicles and further allows the manufacturer to offer related financing, leasing, and servicing.

Why Direct Sales Remain Contested

The legal and economic framework for most new auto sales in the United States is familiar and long-standing: dealer-franchise laws regulate the relationship between manufacturers and independently owned dealers and often prohibit manufacturers from selling directly to consumers.  Under that system, manufacturers generally may not compete with dealers by owning, operating, or controlling dealerships.  The stated rationales for the dealer-sales arrangement include consumer protection, continuity of warranty and repair service, and preservation of fair competition among dealers.

The regulation of direct vehicle sales varies from state to state.  Some states have maintained strong franchise protections rooted in concerns about manufacturer power over local dealers, while others have created exemptions for manufacturers without franchise networks, especially in the EV context.  But newer manufacturers tend to resist the dealership model because they want direct control over pricing, branding, service strategy, and the overall customer experience.  The Department of Justice Antitrust Division has even argued that customers are increasingly more satisfied with direct manufacturer interaction.  Dealer groups, by contrast, defend the traditional model as supporting local investment, service capacity, financing, recall and warranty work, and brand competition among retailers.

The New Washington Law

To qualify for the new direct-sales exception in Washington, a manufacturer must be incorporated in the United States and must have never entered into a franchise agreement with a dealer.  The manufacturer must have operated at least one service facility in Washington by January 1, 2026, and it must exclusively produce electric vehicles (EVs), 300 of which must have been registered in Washington before 2026.  A qualifying manufacturer must obtain and maintain a dealers’ license, which the Washington State Department of Licensing may revoke if the manufacturer ceases to meet the statutory criteria.  The manufacturer will be subject to a $10,000 penalty for each unlawful sale or lease.

The law is not a general authorization for direct sales by all manufacturers and does not materially alter the franchise obligations of legacy automakers already operating through dealer networks.  The enacted text emphasizes that any authorization for manufacturer-owned dealerships is intended to be applied “narrowly” to avoid erosion of the dealer-franchise ecosystem and the benefits it provides to communities across the state.  Accordingly, the effect of the statute is limited by prior dealer relationships, EV-only status, in-state presence, and a Washington registration requirement correlated to the January 1, 2026 date.

How the Legislation Came Together

The final Washington bill emerged after private negotiations between manufacturers and dealer representatives.  According to the official Senate summary of the testimony over the bill, supporters of the legislation described it as a compromise that preserves “guardrails” against unfair competition and broader disruption of the dealership model, while opponents argued the bill “erodes” the franchise framework and creates a narrow exception rather than a uniform rule for all manufacturers.

The legislative compromise appears to have taken shape, at least in part, as a way to avoid a broader statewide ballot initiative that could have gone further in allowing direct manufacturer sales.  Allowing voters to directly change state law is a strategy available in a handful of states, including Washington.  The statute that emerged provides limited relief for certain qualifying manufacturers, yet preserves the broader dealer framework and includes enforcement provisions designed to keep the exception from expanding through affiliations or other workarounds.

The National Landscape for Direct EV Sales

Nationally, direct sales opportunities remain patchy.  More than 20 states allow EV manufacturers to sell directly.  Other states allow only limited access for one manufacturer or a narrow category of manufacturers, rather than a broad rule.  Washington joined the latter category by passing a highly tailored eligibility model, leaving the franchise structure intact for legacy automakers and for most future auto-market entrants.  What distinguishes the Washington legislation was the fact that it was prompted by the possibility of a ballot measure — a process that could find a similar dynamic in other jurisdictions.

Practical Takeaways

For dealers, SB 6354 preserves the familiar franchise system but avoids expansion beyond the defined statutory category.  For newer EV manufacturers, it creates a potential path to direct sales, but not necessarily an open door.  For legacy manufacturers, it changes little, because those companies’ existing dealer relationships remain the central organizing principle of state law.

Finally, for consumers, the short-term effects are likely tangible but limited: the law may make it easier to shop for, test drive, and finance, certain EVs in Washington, but it does not create a general consumer right to buy any new vehicle directly from its manufacturer.  SB 6354 points toward a growing trend in the auto sales market, especially in states where ballot initiatives are a viable option for enacting policy change.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.