Overview
Lucid Group USA, Inc. (“Lucid”) sued Texas regulators in November 2022 to challenge the state’s direct-sales ban.[1] On September 4, 2026, the Fifth Circuit affirmed summary judgment for the state of Texas, holding that the ban does not violate the Equal Protection or Due Process Clauses as applied to Lucid.[2] The decision is the Fifth Circuit’s fourth since 2001 that upholds a state direct-sales ban against a manufacturer’s constitutional challenge.[3] But what makes this decision notable are the two separate concurrences, one from the majority opinion’s author, questioning whether the court’s precedent should reach this far.
The Panel’s Decision
Lucid sells its products exclusively through company-owned “studios.” [4] Texas law requires new vehicles to be sold through dealers but bars OEMs from owning or controlling their own franchised dealer.[5] The Texas Department of Motor Vehicles prohibited Lucid from selling vehicles out of its studio, prompting Lucid to file suit against the Texas regulators. The Texas Automobile Dealers Association intervened as a defendant.[6]
Writing for the panel, Judge Higginbotham held that Lucid’s as-applied constitutional challenge to the Texas statute was legally and factually indistinguishable from the facial challenges the court rejected in Ford Motor Co. v. Texas Department of Transportation (2001) and Tesla, Inc. v. Louisiana Automobile Dealers Association (2024).[7] Under those cases, a state has a rational basis for barring all manufacturers, not only those with existing franchise networks, from selling directly to consumers, because the prohibition curtails “vertical integration and monopolistic tendencies” that could harm dealers and consumers alike.[8] Because Lucid could not negate every conceivable rational basis for the law, both its equal protection and substantive due process claims failed.[9]
Two Concurrences, One Message
Both Chief Judge Elrod and Judge Higginbotham filed separate opinions concurring dubitante, a notation signaling that a judge joins the opinion because precedent compels it, while doubting that the result is correct.[10]
Chief Judge Elrod’s concurrence raises two concerns. First, she questions whether Tesla, which addressed only a facial constitutional challenge to Louisiana’s law, truly forecloses Lucid’s narrower as-applied theory, noting that “Lucid does not simply parrot the legal arguments from Tesla” but instead points to real differences between the two companies and statutes.[11] Second, and more fundamentally, she doubts the “substantive correctness of Tesla’s holding” that preventing vertical integration is a legitimate government interest as applied to a manufacturer like Lucid that has no franchised dealers to exploit, flagging tension with the circuit’s own precedent that “[e]conomic protection of a favored industry is not, on its face, a legitimate state interest.”[12]
Judge Higginbotham’s concurrence, notable because he also authored the majority opinion, goes significantly further. Tracing direct-sales bans to their 1930s origins, he explains that the statutes were designed to stop the “Big Three” manufacturers from exploiting their own franchised dealers through forced inventory purchases and at-will terminations, a form of intra-brand abuse.[13] Because Lucid has no franchised dealers to exploit, he reasons, “[t]he dealer-protection rationale imbuing section 2301.476 and Ford has no application to a non-franchised manufacturer with no downstream intra-brand entities to harm.”[14] Absent that rationale, he writes, the statute does nothing but shield independent dealers from inter-brand competition with “a cheaper, more innovative substitute product,” which the Fifth Circuit has long held “is not by itself a legitimate state interest.”[15]
Judge Higginbotham also takes direct aim at the dealer association’s economic argument that vertical integration raises consumer prices by eliminating intra-brand competition. Invoking the economics of “double marginalization,” he explains that a vertically integrated manufacturer that already commands a wholesale monopoly markup has every incentive to lower—not raise—retail prices, since an additional markup at retail would push the final price past the profit-maximizing point.[16] “There is no rational basis,” he concludes, “for the state to mandate its preferred distribution strategy for non-franchised electric-vehicle manufacturers. All that remains is a consumer with fewer choices.”[17]
Why This Matters
- Nothing changes for Lucid in the short term. It remains unable to sell vehicles from its Plano studio, and absent en banc review, a certiorari petition, or a change in Texas law, Ford, International Truck, Tesla, and now Johnston remains controlling Fifth Circuit precedent for any manufacturer without a franchised dealer network in Texas.
- A majority of this panel is now on record doubting whether Tesla’s broad rationale should extend to manufacturers that never had franchised dealers. Internal disagreement of this kind, especially from the author of the controlling opinion, is often a precursor to en banc reconsideration or a more receptive Supreme Court, which denied certiorari in Tesla but may view the issue differently on a fuller record.[18] Indeed, on September 18, 2026, Lucid filed a petition before the Fifth Circuit for rehearing en banc.
- Judge Higginbotham’s opinion supplies a template for future litigants: an as-applied challenge built around the intra-brand/inter-brand distinction, paired with double-marginalization economic theory rebutting dealer associations’ price-based justifications, may fare better before a different panel than the broad facial challenges rejected in Ford and Tesla.
- Not every circuit has opined on direct sales bans. Those circuits are not bound by this precedent, and two respected Fifth Circuit judges sent a clear message to their fellow circuit judges: don’t follow us.
Barack Ferrazzano’s Motor Vehicle Group will continue to monitor direct sale litigation and challenges nationwide. If you have questions about this decision, or any other manufacturer/dealer issue, please contact us.
DISCLAIMER: This article provides general information only and does not constitute legal advice.
[1] See InMotion: Lucid Joins Assault on Direct-Sales Bans (Nov. 29, 2022).
[2] Lucid Grp. USA, Inc. v. Johnston, No. 25-50319, 2026 WL 2619965 (5th Cir. Sept. 4, 2026).
[3] See Ford Motor Co. v. Tex. Dep’t of Transp., 264 F.3d 493 (5th Cir. 2001); Int’l Truck & Engine Corp. v. Bray, 372 F.3d 717 (5th Cir. 2004); Tesla, Inc. v. La. Auto. Dealers Ass’n, 113 F.4th 511 (5th Cir. 2024).
[4] Johnston, 2026 WL 2619965, at *1.
[5] Id. (citing Tex. Occ. Code § 2301.476(a)(1)(B), (c)).
[6] Id. at *1.
[7] Id. at *3-4.
[8] Id. at *3.
[9] Id. at *4.
[10] Id. at *4-5 (Elrod, C.J., concurring dubitante); id. at *6–7 (Higginbotham, J., concurring dubitante).
[11] Id. at *4 (Elrod, C.J., concurring dubitante).
[12] Id. at *5 (Elrod, C.J., concurring dubitante) (quoting Hines v. Quillivan, 982 F.3d 266, 278 (5th Cir. 2020) (Elrod, J., concurring in part and dissenting in part)).
[13] Id. at *5 (Higginbotham, J., concurring dubitante).
[14] Id. at *6
[15] Id. (quoting Hines, 982 F.3d at 274).
[16] Id. at *6 (Higginbotham, J., concurring dubitante) (citing Daniel A. Crane, Why Intra-Brand Dealer Competition Is Irrelevant to the Price Effects of Tesla’s Vertical Integration, 165 U. Pa. L. Rev. Online 179, 183 (2017)).
[17] Id.
[18] See Tesla, 113 F.4th 511, cert. denied, 145 S. Ct. 2813 (2025).
