Tesla Motors, Inc.'s Dealer Battle -- a Boon for Investors?

Tesla's ongoing battle with dealers may not be making much progress, but that doesn't mean Tesla isn't benefitting.

May 12, 2014 at 6:52PM

Missouri is the latest state to propose legislation in anti-Tesla (NASDAQ:TSLA) language that would deter the company from selling vehicles using its direct model in the state. Given Tesla's refusal to use the franchise system, this could create a substantial sales barrier for Tesla in the state. Looking at the glass half full, however, moves like these could serve as a key marketing tool for the electric-car maker.

Tesla Store Tmf

Tesla's retail stores are often located in high-foot-traffic areas like malls.

Missouri's dealer-inspired move to oust Tesla
Missouri is trying to prevent Tesla from selling vehicles in the state by amending an unrelated proposed bill with language obviously directed toward Tesla. While Tesla hasn't seen much success in persuading states that have already banned direct vehicle sales to upgrade their legislation, the company is usually at least able to prevent states from turning further against Tesla, as Missouri is attempting to do now. The last state to make such a move was New Jersey, when earlier this year it announced legislation to prohibit Tesla's direct model.

The Missouri move was ugly. On Tesla's blog, the company referred to it as a "sneak attack." The blog post continued:

This change is not an innocent, minor amendment. It is completely unrelated to the original bill, which was about laws regarding all-terrain vehicles, recreational off-highway vehicles, and utility vehicles. It is also a complete 180 from current law. The current statute only bars franchisors from competing against their franchisees (for example, Ford cannot compete against Ford dealerships).

Tesla didn't hold back.

To be clear: this is worse than a mere case of dealers trying to protect an existing monopoly -- this is a case of dealers trying to create a monopoly.

Tesla asserts that this last-minute attempt to alter the bill with anti-Tesla language happened via pressure on legislators by an auto dealers lobby.

Free marketing?
While Missouri's actions are unfortunate for consumers in the state, the overall impact on Tesla's business could be positive. If it were consumers opposing Tesla's direct model, media coverage would likely further sour efforts to disrupt the dealer model. But it's not the consumers opposing Tesla -- its dealer lobbyists. It was a dealer lobby group in New Jersey, too, that inspired the state to ban Tesla. Media coverage that paints Tesla as the underdog with the better argument, therefore, could potentially serve as a subtle marketing tool.

Model S Twitter

Model S. Image source: Tesla's official Twitter feed.

As Tesla's dealer fight rages on, the company gets plenty of press that enables it to explain what's unique about its approach to selling vehicles. More importantly, the media coverage may introduce Tesla to many consumers for the very first time.

Tesla's vice president of business development, Diarmuid O'Connell, even said that the dealer battle has served as a marketing tool. "I think that it's been extraordinarily rewarding," O'Connel told The Wall Street Journal. "It's been vastly worth the effort. It's put us in the news in a way that has been useful."

Elon Musk and his team have been successful in getting the word out about the Tesla brand and technology without paying for any advertising. Despite increasing production in every quarter since Model S production began, demand continues to outstrip supply.

Tesla investors shouldn't worry about dealer lobby groups. With consumers mostly on Tesla's side, legislation over the long haul will likely work out in the company's favor. Meanwhile, investors can benefit from the coverage as a free marketing tool for the company. Tesla recently confirmed with The Motley Fool that it still has no plans to initiate any paid advertising; perhaps the company can thank media coverage of the dealer fights for one of the contributing factors to such robust demand.

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Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends and owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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