Order holders for the Tesla Cybertruck have put up with a lot. The truck has been delayed time and again, with Tesla only just now preparing for initial deliveries to begin at the end of this month. On top of everything, Tesla has now said it would charge an onerous $50,000 penalty (and then quietly retracted that, apparently) to any customer who attempts to resell their Cybertruck within the first year of ownership. Is this even legal? Let’s find out.
The detail came as part of the legally-binding order agreement Tesla issued to buyers. “You agree that you will not sell or otherwise attempt to sell the vehicle within the first year following your vehicle’s delivery date,” read the document. Consequences of breaching this condition were stated as a ban on future Tesla purchases or legal action seeking liquidated damages of $50,000, or the sale value of the vehicle, whichever is greater.
The clause also noted Tesla may seek “injunctive relief” to block the transfer of title in the courts. Owners wishing to sell before the time limit would be forced to sell back to Tesla at a discount. If Tesla declines to buy the vehicle, it can be sold to a third party if the owner receives written consent to do so from the company.
The harsh resale policy has since been rescinded. Tesla quietly removed the threatening language from its order agreement shortly after the clause hit the news earlier this week.
“People are freaking out because it’s Tesla but these things are pretty common—and legal,” Michigan attorney Steve Lehto told The Autopian. Lehto shares his analysis of automotive law topics on his YouTube channel, where he has covered the story of the Cybertruck sales clause. “There ain’t nothing illegal about them saying, if you buy the truck, you can’t sell it for a year,” he says, adding “The simplest solution here is, if you don’t like the agreement, don’t sign it. Just don’t buy one of the trucks.”
This concept is very much borne out by the example of the Ford GT. Ford was famously persnickety when the GT went on sale, choosing buyers carefully based on how they would use, show, and display the vehicle. Ex-WWE star John Cena was selected as one such lucky buyer, and yet after displaying his admiration for the car, he quickly turned around and sold the vehicle just weeks after taking delivery.
Ford were quick to bring a lawsuit against the wrestler over the matter, alleging he’d made a hefty profit in selling his car, and breached their agreement. Ford’s lawsuit sought “the disgorgement of profit Mr. Cena made on his improper resale, and other damages, including, but not limited to, damages for loss of brand value, ambassador activity, and customer goodwill, which exceed $75,000.” Eventually, Cena settled the matter with Ford for an undisclosed sum, with the automaker donating the proceeds to charity. A further case went to court when a Ford GT showed up at Mecum Auctions, with that matter eventually being settled as well.
Ford’s example shows that automakers can put in place contractual measures against reselling with some degree of success. Of course, it bears noting the finer details weren’t completely tested by the courts given that cases were settled instead. Regardless, it’s a pretty straightforward piece of enforceable contract law, according to Lehto. “Ford now enforces theirs by putting a lien on the vehicle which they remove at the end of the period,” he notes, a measure he believes was taken due to the blowback from the lawsuits.
But what about this $50,000 sum Tesla seeks in the wording of its order agreement? We put the question to Attorney at Law Sheryl Weikal. It all comes down to the concept of liquidated damages, how they work from a legal standpoint, and how contracts are interpreted, she says.
“Liquidated damages is the term for a provision which fixes the amount of money a party has to pay for a breach of contract,” Weikal explained to The Autopian. “There’s nothing wrong with that, except that the liquidated damages must, to be enforceable, be reasonably related to the actual damages suffered or anticipated as a result of the breach, and those damages generally must be provable.”
It’s on that latter point that Tesla comes to grief. “If you rent my car, and the rental agreement says you have to pay me $250 for cracking my windshield, that’s enforceable if it will cost me approximately $250 to replace or repair the windshield,” says Weikal. That’s a simple case, with real damages being paid back in kind. “But if the liquidated damages are not related to actual damages suffered by the non-breaching party, or are intended to disincentivize a breach or coerce compliance with the agreement (a “do this or else” clause, essentially), it’s both unenforceable and unlawful.”
“First, there is nothing which establishes or hints at Tesla’s actual damages, largely because it’s hard to understand if they even have any,” says Weikal. “Second, it’s clearly on its face designed to prevent resales and not to compensate Tesla, and as such it’s a coercive penalty. And third, it’s an adhesion contract, which is interpreted against the drafter.”
On that last point, Weikal refers to the concept wherein a contract is drafted by an entity that has significantly more power to dictate terms than the party being asked to sign it. In this case, that’s Tesla. As per established legal convention, interpretations typically side with the consumer rather than the company that drafted the contract, to temper this power imbalance. In these contracts, big monetary penalties don’t normally fly with the courts. “That’s because in adhesion contracts, since you can’t really negotiate individual terms, liquidated damages provisions end up being land mines for often unsuspecting customers or restrictions on customers that weren’t bargained for,” Weikal explains.
Ultimately, it’s not clear Tesla could prove it had suffered $50,000 in damages from someone listing their new Cybertruck on eBay for some vastly inflated sum. In reality, as structured, it comes across as more of a threat to discourage owners from attempting a resale against the company’s wishes.
So, what conclusion can we draw at the end of the day? Ultimately, Tesla has withdrawn the clause, at least for now, suggesting someone involved realized the anti-resale provisions might not be appropriate. With that said, Ford’s success in reigning in resales of the GT suggests it can be done properly. It might be that Tesla’s legal team needs to go back to the drawing board.