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

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'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. 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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Read/Post Comments (9) | Recommend This Article (3)

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 May 12, 2014, at 7:13 PM, Ustauber wrote:


  • Report this Comment On May 12, 2014, at 7:22 PM, Capt601 wrote:

    DOJ study in 2009 determined auto prices are 8.6% higher through dealer franchise model than if sold via direct sales. Other studies have this number as high as 15%.

    This just shows how many lies the dealers will spew to keep their monopoly.

  • Report this Comment On May 13, 2014, at 4:36 AM, Jackl1956 wrote:

    Why would any group restrict free market capitalism?

  • Report this Comment On May 13, 2014, at 8:38 AM, Cencio wrote:

    I have owned my Tesla Roadster for four years and our Model S for 1-1/2 years. I have NEVER been treated better in any car-buying or servicing experience. Tesla has an exceptional customer ethic and practices. All of the dealers' arguments are phoney and disproven.

  • Report this Comment On May 13, 2014, at 9:07 AM, Jobs wrote:

    $10,000 for supporting Elon Musk.

    $10,000 for supporting EV.

    $20,000 for naming TESLA.

    $50,000 for fighting against the franchise system.

    Plus $5,000/yr saving of energy cost.

    So my Model S worth more to me than what I paid, plus feeling really really good !

  • Report this Comment On May 13, 2014, at 10:08 AM, damilkman wrote:

    I am interested if this is an issue or not. So please comment if so. I'm wondering if some states wish to retain the dealer network because of tax purposes. When an individual purchases a car from a dealer the tax has to be collected because it is in state. When Tesla sells an individual a car in lets say New Jersey do they collect the tax for the state of New Jersey? If not then if the individual does not declare the tax on their returns it may be very difficult for a state to audit for that. It is one thing for a 10 dollar book from Amazon to not be taxed. It is completely different if big ticket items like car purchases do not collect any revenue for the state.

    So for those on the list who have purchased Tesla autos via the their model were you compelled to pay state taxes? If you were not compelled did you report it anyway or did you not?

  • Report this Comment On May 13, 2014, at 12:12 PM, DaveSRQ wrote:

    In response to damilkman:

    Tesla collects sales tax on every sale, and pays it to the State the customer lives in, just like any dealership would. I personally know this because I own a Model S.

    Essentially, you go to the Tesla web site to configure and order your car. If you are within an hour+/- drive to a service center, you pick your car up there (if the State allows you to do so). Otherwise, the car will be delivered to your house.

    No state can stop you from registering a car that you purchased in another state, or over the internet (new or used). But a few states are attempting to restrict: (1) the number of Tesla showrooms, (2) Tesla's ability to discuss pricing in the showrooms, (3) Tesla's ability to assist potential customers with completing a sale in the showroom, and (4) offering test drives.

    Sure, you can purchase a Tesla in Missouri, it's just that the auto dealer lobbyists want to make it difficult to do so.

  • Report this Comment On May 13, 2014, at 1:26 PM, tyler91988 wrote:

    As a Kansas City (KS) resident, this gives me all the more reason to dislike Missouri.

    See link for humor's sake:

  • Report this Comment On May 14, 2014, at 12:12 AM, MiserblOF wrote:

    Auto dealers are one of the most egregious special interests in the country, and serve no real purpose beyond specialist training of technicians to fix complicated machinery that the Tesla doesn't use. Tesla is going to win this battle, and the dealers will eventually fade away.

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Daniel Sparks

Daniel is a senior technology specialist at The Motley Fool. To get the inside scoop on his coverage of technology companies, follow him on Twitter.

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