On September 4, 2026, the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment for Texas officials and the Texas Automobile Dealers Association (TADA) in Lucid Group USA, Inc. v. Johnston in a decision following a line of Fifth Circuit cases dating back more than 20 years rejecting constitutional challenges to state bans on the direct sale by manufacturers of motor vehicles to consumers. The three-member panel unanimously found that circuit precedent compelled them to conclude Texas’s ban on manufacturer-owned dealerships, codified at Texas Occ. Code § 2301.476, withstood rational basis review under the Equal Protection and Due Process Clauses. But in the decision, two of the justices—including the author of the lead opinion—concurred in the decision but questioned whether the Texas ban amounted to improper economic protectionism of in-state interests. On September 18, 2026, Lucid filed a petition seeking en banc review of the decision, opening the possibility the Fifth Circuit may soon revisit its prior decisions on this issue and consider whether state law direct sales bans violate protections afforded under the U.S. Constitution.

Background and Procedure

Lucid Group, Inc. manufactures luxury electric vehicles, and its affiliate, Lucid Group USA, sells them online and through company owned retail locations called “studios.” Lucid has no franchised dealers in Texas or elsewhere. Texas Occupations Code § 2301.476 prohibits a motor vehicle manufacturer, as well as an affiliate or entity under common control, from directly or indirectly owning, operating, or controlling a dealership that sells the same type of vehicle.

In 2021, the Texas Department of Motor Vehicles told Lucid that it could not sell vehicles at its Plano studio. Lucid sued the DMV officials in November 2022 under 42 U.S.C. § 1983, bringing as-applied challenges under the Equal Protection and Due Process Clauses of the U.S. Constitution. TADA intervened. The district court denied the state defendants’ motion to dismiss in June 2023, but on March 31, 2025, granted summary judgment to the state defendants and Lucid appealed.

Issues on Appeal

The controlling issue was whether Texas’s direct sales ban, as applied to Lucid, violated the Equal Protection and Due Process Clauses even though Lucid had no franchised dealers. Lucid argued that the law created an irrational distinction between direct sales manufacturers and both franchised manufacturers and independent dealers. Because the law involved neither a suspect class nor a fundamental right, the Court applied rational basis review, requiring Lucid to rule out every conceivable rational basis for the classification.

Holding and Reasoning

A three-member panel of the Fifth Circuit affirmed, holding that Ford Motor Co. v. Texas Department of Transportation, 264 F.3d 493 (5th Cir. 2001), International Truck & Engine Corp. v. Bray, 372 F.3d 717 (5th Cir. 2004), and Tesla, Inc. v. Louisiana Automobile Dealers Ass’n, 113 F.4th 511 (5th Cir. 2024), controlled. The Court rejected Lucid’s proposed comparisons. Following Ford and Tesla, the Court treated the relevant class as all vehicle manufacturers, not only those using the franchise model. It held that Lucid was not similarly situated to independent dealers because § 2301.476 defines “manufacturer” to include affiliates and entities under common control, and Lucid’s manufacturing and retail entities fall within that definition. Even if the law treated different groups differently, the Court held that Texas could rationally limit vertical integration, monopolistic tendencies, and potential abuses in the automobile retail market.

Citing Tesla, the Court described a manufacturer’s move into distribution as a classic example of vertical integration. Because Tesla and Lucid make the same product and use the same direct sales model, and because the Louisiana and Texas bans are similar, the Court held that Tesla foreclosed Lucid’s as-applied Equal Protection challenge as a matter of law. The Court rejected the substantive Due Process claim for the same reasons, explaining that rational basis review works the same way under both clauses.

Both circuit judges who joined the panel opinion wrote separately to express reservations. Judge Higginbotham, who also wrote the panel opinion, questioned applying Tesla to Lucid. He traced direct sales bans to historical concerns about manufacturers exploiting franchised dealers through forced inventory purchases and at-will terminations, explaining that those concerns do not fit a manufacturer with no same-brand dealers to harm. He noted that vertical integration could lower consumer prices by avoiding double marginalization that results from using franchised dealers, and observed that limiting EV distribution could slow innovation and reduce consumer choice.

Chief Judge Elrod also questioned whether Tesla foreclosed Lucid’s as-applied challenge under a different state’s law and whether the vertical integration rationale could be reconciled with Fifth Circuit decisions such as St. Joseph Abbey v. Castille, 712 F.3d 215 (5th Cir. 2013), which held that pure economic protectionism is not, on its face, a legitimate state interest. Both judges nevertheless agreed that existing Fifth Circuit precedent mandated the result.

En Banc Appeal Creates New Opportunity

Perhaps emboldened by the doubts expressed by two of the three members of the panel, Lucid on September 18, 2026 filed a petition seeking en banc review of the decision. Under Rule 40(b)(2) of the Federal Rules of Appellate Procedure, a party may seek en banc review only in limited circumstances, including when a panel decision conflicts with a decision of the court or where the proceeding “involves one or more questions of exceptional importance.” If a majority of the active circuit judges choose to grant this petition, Lucid may soon have the opportunity to argue why the Fifth Circuit should reconsider its prior decisions and determine whether Lucid should have an opportunity to present evidence that Texas’s law banning manufacturer-direct sales violates protections afforded under the U.S. Constitution.