The serial soap opera that is Elon Musk and Tesla (TSLA 12.06%) took another turn last December, when the billionaire entrepreneur thumbed his nose at California and said he was moving Tesla's headquarters to the huge factory he was building in Texas. Tesla said the move would create 5,000 Texas jobs at an average annual salary of $47,000. Tesla, on the other hand, would be freed from costly California regulation and would receive tax breaks worth up to $64.7 million.
That seemed like a good deal for both parties, but rather than saying thanks, Texas has recently excluded Tesla from a rebate plan that rewards buyers of electric vehicles (EVs), and it continues to make it difficult for Texans to buy Teslas. Here's why investors shouldn't get too alarmed about this apparently soured relationship.
No Texas rebate for Tesla buyers
The Texas EV rebate program awards a rebate of $2,500 to the buyers of EVs produced by every major car manufacturer, except Tesla. A total of 142 different models are eligible for the rebate, but not the world's best-selling EVs: Tesla's.
When asked why Tesla was excluded from the Texas rebate program, Laura Lopez, the spokeswoman for the Texas department running the rebate program, said, "Under Texas law, vehicles purchased directly from the manufacturer, or an out-or-state dealer not licensed to sell or lease new vehicles in Texas, are not eligible for a rebate."
While many states that provide franchised new car dealers protection from direct-sales competition made concessions for Tesla, Texas has not done so. State law requires all buyers of new automobiles to purchase through a franchised dealer. If you're a Texan and you crave a Tesla, you must travel to another state to buy one, or have the sale paperwork processed in another state.
Texas first enacted protectionist dealership laws in the 1930s. The regulations banned the selling of cars to consumers by anyone other than a franchised dealer. In the wild and wooly early days of the auto industry, the laws may have afforded some consumer protection against the possibility of buying a car that was counterfeit or couldn't be serviced. But these laws have long since outlived their usefulness and today serve only to protect a monopoly that arguably gouges consumers. The National Automobile Dealers Association champions these regulations, and in support of them, its PACs contributed over $45 million nationwide to political candidates and organizations, both Democratic and Republican, since 1990, and have spent more than $68 million on additional lobbying efforts.
Elon Musk has repeatedly tried to get the Texas legislature to allow direct sales of automobiles. In 2015, while wooing the legislature, he indicated that Tesla might build a factory in Texas. He built that factory and relocated his corporate headquarters to Texas, but the state's legislature has not acted. None of that seems to have deterred Musk thus far.
The Tesla Gigafactory in Austin, Texas, is now home to the company's corporate headquarters. Source: Tesla.
Car buyers still love Tesla
Neither the lack of rebates nor the obstacles to purchasing a Tesla in the Lone Star State are likely to significantly affect the company's sales in the state. The rebate program is limited to 2,000 EV buyers, a scant number for an automaker that will likely sell well over 1 million vehicles worldwide in 2022. At least one analyst predicts Tesla sales of 2 million for the calendar year. Tesla is on track for robust U.S. numbers ithis year as well, racking up domestic Q1 sales of approximately 150,000 cars.
Apparently, quite a few Tesla buyers reside in Texas, even if the purchase of their vehicle was recorded in another state. As of April 2022, 52,190 Teslas were registered in Texas. Only California and Florida can claim more Tesla registrations.
Wall Street jitters beat down the price of Tesla stock
While car buyers like Tesla, Wall Street has, at least for now, fallen out of love with the company. Tesla stock has dropped about 35% since Musk announced his deal to buy Twitter. Musk's extensive holdings of Tesla stock were used as collateral to back up the loans he took out to finance the on-again, off-again Twitter purchase. That apparently makes investors nervous.
But the company's cars continue to sell in Texas and elsewhere, and Tesla's stock price appears to have leveled off for the last several weeks. Tesla posted record revenue in Q1, despite rising raw material costs, and the company delivered 68% more vehicles year over year. With 4.6% of the automaker's revenue going to research & development in Q1, its continued progress looks likely, increasing the odds that shares might rebound in the future.
