Tesla Motors Inc. Stock This Week -- New Jersey Bans Tesla, Fan Makes Commercial

Tesla Motors (NASDAQ: TSLA  ) stock fell about 6% this week, faring worse that the S&P 500's decline of about 2%. While there were news-worthy items related to Tesla during the week, the most likely cause of the decline in Tesla's shares is simply that it is a suitable time for a breather after a gain that topped 40% in the past two months, on top of a massive 300% gain in in 2013.

Let's look at the Tesla news that surfaced during the week as well as the stock's valuation, which is raising eyebrows.

Model S. Image source: Tesla Motors.

Tesla gets banned in New Jersey
The most important Tesla news this week came on Tuesday, when the company blogged about New Jersey Gov. Chris Christie's sudden decision to support attempts to ban Tesla's direct sales model in the state.

Later that day Tesla was, indeed, banned from selling cars in the New Jersey. The state approved a regulation that would require all new-car dealers to obtain franchise agreements in order to receive state sales licenses. The Christie administration had previously agreed to delay the proposal and, instead, grant Tesla a fair legislative process to defend its reasoning for a direct sales model in the state. But Christie changed his mind, gave Tesla less than 24 hours' notice, and here we are.

While Tesla does have a broader agenda of defending innovation and consumer choice by pushing the direct sales model over the franchise model, the argument can be simplified even further: Tesla says that selling its eclectic vehicles is (understandably) an education-intensive process. Having its own stores and Tesla retail employees, therefore, allows the company to educate customers, potential buyers, and the rest of the world about electric cars.

Is the sell-off merited?
That depends on your view of the trajectory of electric cars, going forward. But investors looking to buy Tesla at a reasonable price may end up never owning the stock; disruptive companies like Tesla are known to consistently trade at wild valuations as the market prices in a bullish outlook.

To add perspective of just how expensive Tesla stock is, the company trades at a market capitalization of $28.5 billion, half of General Motors' market valuation. This is telling, considering that Tesla only sold about 22,500 vehicles in 2013 and General Motors sold 9.7 million vehicles. To be fair, however, Tesla projects that the company can sell 500,000 annually by 2020. Further, its gross profit margins are putting many automakers to shame.

Wrapping up the week with a fun video, here is a fan-made Tesla Model S commercial making waves.

Excited fans like these college graduates who shot this film play a big role in Tesla's word-of-mouth marketing as the company continues to spend zero dollars on advertising.

Going into next week, keep an eye out for a blog post from Tesla. Tesla CEO Elon Musk tweeted on Friday that he was working on a post this weekend to counteract arguments from journalists who are asserting that the Model S has negative impacts on the environment.

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

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 15, 2014, at 7:26 PM, fhenry065 wrote:

    My grandson works for a dealership as a saleman - these are some of the words he picked up in working for the dealership and the customers - "they pounded the customer", "they loaded the customer up on the back end (finance) telling them they saved $20, while in fact it cost them thousands", "they slammed them on their trade in", "these people were lay downs because the dealership could tell them anything and they believed it" - this is what the newbees, the green peas are taught to do when dealing with their customers - yep, we certainly want to keep that model of doing business in place - one example - lady buys a used car and is handed the keys and remote, next day comes back and says remote doesn't work, she is told "did nayone tell you the remote worked or did you just assume it" - sorry, we are not doing anything for you - sad but true -

  • Report this Comment On March 17, 2014, at 8:46 AM, blando3 wrote:

    Car salesmen are the scum of the earth: dishonest to their very core. They'll trick customers into paying many thousands of dollars - sometimes for a faulty car - just to make a $120 commission. How they sleep at night is a mystery to me.

    It's nice to see a company threatening their very existence.

  • Report this Comment On March 17, 2014, at 5:36 PM, timlonely wrote:

    I, as a consumer, thank you Texas, AZ, NJ, VA, MD and several other states for banning Tesla from selling their cars directly to the public. In doing so these states are protecting my rights to be overcharged by car dealerships, my rights to have a middle man who can make money without really doing anything to make my car better and ultimately for my rights to be screw up when I will have to bring my car in for repair.

    I will remember Christ Christie et al when election time will come.

  • Report this Comment On March 17, 2014, at 6:00 PM, thinwhiteduke1 wrote:

    these five states are led by ignorant state legislatures. one of the worst purchasing experience in this country is buying a car. First of all, most manufacturers are more in the finance business than manufacturing, and you always drive away feeling like you've been ripped off, when rather it should be a happy moment. and the US Congress (and entire Federal gov't) is no better. We get the shaft and they get the graft.

  • Report this Comment On March 17, 2014, at 6:03 PM, thinwhiteduke1 wrote:

    maybe if Obama gives Tesla a "bailout" he'll advertise for Tesla as he did for GM.

  • Report this Comment On March 17, 2014, at 9:19 PM, RussellL wrote:

    Please sign this petition.

    We need 100,000 signatures by Apr 10. We have 3,224 as of Mar 17, 6:17pm PDT

    "Inform New Jersey that markets should be free for Tesla Motors and for everyone"

    "We ask that you inform Governor Chris Christie and the New Jersey Motor Vehicle Commission to overturn their hastily decided rule to ban Tesla from selling direct to consumers. The backroom negotiated amendment was put in place to protect dealers and not protect the people of New Jersey. In a free market, the people should decide for themselves."

    https://petitions.whitehouse.gov/petition/inform-new-jersey-...

  • Report this Comment On March 18, 2014, at 4:41 PM, smbowen1 wrote:

    Seems to me unconstitutional that states can regulate car sales from outside their state. Doesn't this involve interstate commerce?

    More often that not when bureaucrats argue state rights issues they assume the people exists for the state. when in fact the state exists for the benefit of its people.

    We all know the damage caused by fossil fuel and we all know car dealers aren't there to help consumers. We know oil companies gouge prices.

    Look at the recent comments regarding China sales. Tesla refuses to add the customary gouge to sales there.

    Sure there is environmental impact by electric cars. The path to electric requires several transitions. Conventional charging by biofuel consuming powerplants, solar charging etc, maybe nuclear power will eventually prove to have the least impact. At least Tesla cars aren't running up and down the road spewing pollutants and greenhouse gases. Rather these are generated at fixed easier to control locations.

    Not only will I not ever buy a new car in a state that takes this tact. To the extent possible I will refuse to buy any product in that state or produced by that state. I encourage other consumers to adopt the same philosophy.

    Shame on these bureaucrats and fat cats. They should, instead be helping with this transition.

    What's their next step. To ban Tesla cars on their roads and only allow fossil fuel vehicles?

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