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This Law Could Give Tesla Stock a Flat Tire

If you owned stock in Tesla Motors (NASDAQ: TSLA  ) going into this year, you've probably made a pretty penny. In fact, Tesla stock has gained more than 100% in the past month with the stock now trading around $90 a share. However, it could be a bumpy ride going forward. The electric-car maker's disruptive retail strategy is catching heat from state lawmakers and dealership associations that could prevent Tesla from selling its cars in certain states.

Road-blocking the future
North Carolina's Senate Commerce Committee unanimously approved a proposal last week for a law that, if passed, could cripple Tesla's chances of selling its zero-emissions vehicles in the state. The North Carolina Automobile Dealers Association, which supports the bill, argues that Tesla's direct sales model threatens the livelihood of the state's licensed auto dealers, according to Raleigh's News & Observer.

You have to give Tesla credit for attempting to change the retail rules of a century-old auto industry. In hopes of one day transforming the outdated dealership experience, Tesla CEO Elon Musk argues: "Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars."

Musk also makes the valid point that because Tesla doesn't have any existing franchise dealers, it isn't violating automotive franchise laws. Of course, North Carolina isn't the first state to test the brakes on Tesla's retail plan. The EV maker has testified and won the right to sell its cars directly to consumers in other states including New York, Florida, New Jersey, California, Colorado, Oregon, Washington, and Massachusetts.

Where goes the Model S?
Tesla is making progress, albeit in small doses. Musk even traveled to Texas last month to fight for the company's right to operate in the Lone Star State. Only time will tell whether Texas and North Carolina will ultimately rule in Tesla's favor. However, at this point, it isn't looking good.

Nevertheless, I stand by my long-term view that Tesla stock will reward shareholders for years to come.

Near-faultless execution has led Tesla Motors to the brink of success, but the road ahead remains a hard one. Despite progress, a looming question remains: Will Tesla be able to fend off its big-name competitors? The Motley Fool answers this question and more in our most in-depth Tesla research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

Read/Post Comments (7) | Recommend This Article (5)

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  • Report this Comment On May 14, 2013, at 2:03 PM, MiserblOF wrote:

    First, I believe that the constitutionality of such a law would be suspect, targeted as it would be at a single company knocking on the door of spectacular success.

    Second, the dealers should be worried. While today's high-tech vehicles demand intensive and model specific training to properly maintain and repair, that is the only real-world reason for dealers to exist. Tesla's marketing model could revolutionize auto marketing and end the total nonsense of inflated dealer prices and haggling that make car purchases a nuisance for American car owners.

    Third, my guess would be that the places where dealers would be most successful in getting laws passed for their special interest benefits will be those that are the least likely to buy a lot of electric vehicles, for a number of reasons. What is to stop a prospective customer from having the vehicle shipped to an out-of-state relative, if they really want it?

    Tesla can be enormously successful as a niche product, selling $70,000+ cars to an exclusive clientele, but my (again) guess is that they have no such plans. My hope and dream is that Tesla will eventually hit mid priced automotive targets and begin the demise of the stranglehold by Big Oil on this country. For that to happen, however, solar power must be developed and come down in price as well.

  • Report this Comment On May 14, 2013, at 2:17 PM, speechisntfree wrote:

    Restraint of Trade..... and if this law is allowed it will be the most clear validation that our government at all levels is on their knees to the oil industry and big corporations.

  • Report this Comment On May 14, 2013, at 2:20 PM, F2JP wrote:

    The process is still under way, so let's not call it until it's done.

    I just don't see NC ever putting a dent in Tesla's sales if they do go all the way with it..

    There are too many other forward thinking states to worry about the few backwoods stalwarts.

    Even NC passes this, there are still the courts as an option. There is no legal or even rational basis for preventing Tesla from competing in the market. Cronyism, and the Good Ol Boy Network are not suitable justification to violate Anti-Trust Laws.

  • Report this Comment On May 14, 2013, at 2:32 PM, Joncab5 wrote:

    NC should be embarrassed by this news article. I can believe the modern people if the research triangle would support this.

    Corrupt NC dealerships and disappointing.

  • Report this Comment On May 14, 2013, at 2:47 PM, jimmy4040 wrote:

    "Tesla's marketing model could revolutionize auto marketing and end the total nonsense of inflated dealer prices and haggling that make car purchases a nuisance for American car owners. "

    Apparently you are unaware that car makers make their profit FROM the dealers, not the ultimate purchasers. So eliminating dealers is the reason that Tesla's operating profit margin is only a little over 2% on a luxury car, after you back out the tax credit.

    Current valuation is as insane as anything we have seen since the dot com days, even if you love the car itself, as I do.

  • Report this Comment On May 14, 2013, at 3:05 PM, investorw777 wrote:

    The stock price $100 for TSLA is around the corner. Please hold the stock and do not sell so quickly.

  • Report this Comment On May 14, 2013, at 3:07 PM, investorw777 wrote:

    Tesla cars will be very popular in China due to large demand.

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