Volkswagen, Audi, and Porsche dealers are challenging Colorado’s approval of Scout Motors’ direct-to-consumer sales, arguing that the automaker does not qualify as an EV-exclusive brand.
Colorado dealers file suit over Scout Motors’ direct sales license approval. Dispute centers on whether Scout’s range-extended EVs count as exclusively electric. Dealers claim the law applies only to pure EV makers and are seeking to block Scout’s direct-to-consumer model.
Scout Motors, a Volkswagen subsidiary, has not yet delivered a single production vehicle, but the startup is already facing legal challenges. A new lawsuit in Colorado contests the state’s decision to allow Scout to sell vehicles directly to customers, a privilege traditionally reserved for electric vehicle-only automakers. This is not Scout’s first legal battle tied to its ambitions for direct-to-consumer sales.
The lawsuit was filed on January 20 in Denver District Court by a group of Volkswagen, Audi, and Porsche dealers operating in Colorado. Rather than suing Scout Motors directly, the dealers are targeting the state, claiming regulators misapplied franchise law when approving Scout’s license late last year.
House Bill 19-325 permits manufacturers to sell directly only if they produce exclusively electric vehicles and have no franchised dealers for the same brand in the state. The bill defines an electric motor vehicle in a way that, according to the dealers, excludes any vehicle with a combustion engine, even if that engine does not drive the wheels.
The plaintiffs argue the Department of Revenue’s Motor Vehicle Dealer Board misclassified Scout as an EV-only automaker and ignored the company’s close ties to the Volkswagen Group.
Scout’s powertrain strategy is at the heart of the dispute. In addition to fully electric versions of its Terra pickup and Traveler SUV, the company plans to offer extended-range electric variants that use a gasoline engine purely as a generator to recharge the battery, similar to the upcoming Ford F-150 Lightning replacement. In theory, these vehicles can run entirely on electric power, which could allow them to qualify as EVs under Colorado law.
However, dealers disagree. The lawsuit frames the setup as a plug-in hybrid, arguing that the inclusion of a combustion engine disqualifies Scout from exemptions intended for brands like Tesla, Rivian, or Lucid.
With roughly 80% of early Scout reservations reportedly for the range-extended variants, the company is unlikely to abandon its extended-range EV plans in order to comply with legislation.
Dealership operations have evolved in countless ways. Some are returning to the relationship-driven model of the 1990s, while others, like Tesla, continue to rely almost entirely on online orders (excluding Japan). With EV demand softening and sales declining, automakers are under pressure to cut costs, and direct-to-consumer sales provide one path to efficiency.
Dealers argue that letting a Volkswagen-backed brand that does not produce pure EVs bypass the franchise system undermines the law, and they have a point. Yet new rules are needed for new technologies and business models.
The situation also raises the possibility that some legacy dealers are targeting Scout not for legal principle alone, but to eliminate potential competition before the company even hits the market.
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