Share price of Tesla Motors, Inc. (TSLA) declined to $192.69 on Jan 14, 2015 due to revelation of weakness in fourth quarter China sales and expectations of GAAP losses till 2020. However, in a positive development, Connecticut is considering permitting direct selling of Tesla’s electric vehicles to customers in the state.
The Transportation Committee of the state’s legislature will raise a bill for public hearing regarding direct sales by Tesla. If the bill is passed the automaker will not have to depend on independent franchise dealerships to sell its vehicles.
Connecticut, like many other states, currently prevents direct sales of vehicles by manufacturers. As a result, Tesla was not given a state dealership license there. The automaker only has a repair facility in Milford. If the bill is passed, Tesla expects that it will receive a Connecticut dealership license to operate its own store.
At present, Tesla has stores in about 20 states. State legislators across the country have considered whether to allow direct sales by automakers. Last year, Pennsylvania's Governor signed legislation allowing Tesla to open five dealerships in the state. However, Michigan's Governor signed a legislation banning direct car sales by automakers in the state. The law mandates that new vehicles need to be purchased from dealerships. According to Tesla, this law will adversely affect consumers in the state as dealers will increase the prices of vehicles.
Tesla also faced issues related to direct selling in Massachusetts. In 2014, the state’s highest court rejected a lawsuit demanding a ban on direct sales of Tesla. Currently, the automaker sells its vehicles at a mall in Natick, MA. Tesla has faced sales restrictions in New Jersey and Missouri, as well.
Tesla argues that a ban on direct sales will help dealers create a monopoly. It believes that direct sales reduce the price of electric vehicles and facilitate higher sales. Dealers state that they play an important role for customers by taking care of warranties, recalls and other service-related issues with the manufacturer, which is lost in cases of direct sales.
Currently, Tesla carries a Zacks Rank #3 (Hold). Better-ranked automobile stocks include PACCAR Inc. (PCAR), Magna International Inc. (MGA) and Meritor, Inc. (MTOR). All these stocks carry a Zacks Rank #2 (Buy).
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