Regulation
Lucid pushes for full Fifth Circuit rehearing on Texas direct-sales ban
By Insurance Wire Staff, . Insurance Wire.
Lucid Group has petitioned for en banc review, a rehearing before the full court, after a Fifth Circuit panel affirmed Texas's ban on direct vehicle sales by manufacturers, according to Repairer Driven News. The September 4 appellate ruling upheld a lower court finding that the Texas law, which requires vehicles to be sold through independent franchised dealers rather than by manufacturers themselves, does not violate the Fourteenth Amendment's equal protection or due process clauses.
The case began when the Texas Department of Motor Vehicles told Lucid it could not sell vehicles at its Plano studio. The Texas Automobile Dealers Association later joined the case as a defendant. Lucid argued it is similarly situated to both franchised manufacturers and independent dealers, yet treated differently under the law. The Fifth Circuit rejected that framing, as it had in earlier cases brought by Ford in 2001, International Truck in 2004, and Tesla in 2024, ruling that Lucid's manufacturing and retail operations fall under the same parent company and therefore do not resemble an independent dealer.
What makes the ruling unusual is the degree of doubt the panel itself expressed about the law it was enforcing. Two of the three judges filed concurring dubitante opinions, a formal signal of legal doubt without dissent. Circuit Judge Patrick E. Higginbotham wrote that Texas's prohibition was historically designed to protect dealers from their own upstream franchising manufacturers, not from manufacturers like Lucid that have no franchise relationship with dealers at all. "Absent another valid purpose," he wrote, as quoted by Repairer Driven News, "preventing inter-brand competition is naked protectionism, which we have long held 'is not by itself a legitimate state interest.'" Chief Judge Jennifer Walker Elrod agreed that Lucid's challenge raised genuine distinctions from the Tesla case, but concluded those distinctions could not clear the bar the Tesla ruling had set.
Higginbotham also argued that Lucid's vertical integration, its control over both manufacturing and distribution, could actually benefit consumers by eliminating what economists call double marginalization, the price inflation that results when separate firms at each stage of a supply chain each exercise market power. He added that applying franchise-era market restraints to electric vehicle manufacturers risks stifling innovation in a sector with distinct technology and a distinct business model.
The practical stakes here extend well beyond Lucid. Texas is one of several states with laws that effectively lock direct-sales manufacturers out of the retail market. If the full Fifth Circuit agrees to rehear the case, it would have the opportunity to revisit whether those laws serve any legitimate purpose when applied to companies that never operated through franchises. A ruling in Lucid's favour would not automatically invalidate similar statutes elsewhere, but it would give challengers in other circuits a stronger foundation.
What remains unresolved is whether the en banc petition will be granted. The full court is not obligated to take the case, and the panel's unanimous judgment, even with its dubitante concurrences, gives the court cover to let the ruling stand. The concurrences do, however, signal that at least some judges on the circuit view the current legal framework as an awkward fit for the direct-sales model, which may be enough to attract the votes needed for a full rehearing.
Professionals in automotive insurance and dealer-related liability lines should watch the en banc decision closely. A shift in how Texas or the Fifth Circuit treats direct-sales manufacturers would affect the distribution structure those lines are written around.
Insurance Wire provides news and information, not insurance, legal, or financial advice. Consult a qualified professional about your specific needs.