Tesla Faces Sales Restriction in Ohio - Analyst Blog

By Zacks Equity Research,

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Tesla Motors, Inc. ( TSLA ) is facing licensing problem in setting up additional direct-sales galleries in Ohio. The issue will impede Tesla's expansion in Ohio, eventually affecting its presence in the state. Tesla is striving to prevent the implementation of this policy by the Ohio legislative body.

Tesla obtained the license to set up stores in Cincinnati and Columbus in Ohio from the Bureau of Motor Vehicles. However, these licenses have been cancelled. In addition, the Ohio Automobile Dealers Association has taken legal action against the existing stores of Tesla.

The implementation of the new law will not only mar the company's results but will also affect customers and dealers. It is put forward that dealers play an important role, which are lost in case of direct sales. Dealers take care of warranty, recall and other service-related issues with the manufacturer for the customers.

Tesla has a good market in Ohio. It sold around 500,000 cars annually in the state. The two most popular cars of the automaker are Roadster, priced at $100,000, and Model S sedan worth $75,000. The company also plans to offer a $35,000 economy model for its customers in Ohio.

Tesla offers its customers a relatively new technology which provides sustainable transportation. Electric vehicles offer more fuel efficiency and better emission standards compared to their gasoline counterparts. Tesla believes that direct sales reduces the price and facilitates electric vehicle sales.  

Not only in Ohio, last week, stringent licensing rules imposed by the New Jersey Motor Vehicle Commission (NJMVC) and members of Governor Christie's administration have placed Tesla in a difficult position. The new regulations ban the direct sales of vehicles by any automaker and necessitate the use of middlemen. However, Tesla employs the direct selling model for its cars. Thus, its sales will be restricted in New Jersey and its existing retail licenses will be cancelled.

Tesla alleged that the new regulation is adopted to protect the monopoly of a special interest group and is against free market operations. After the law is implemented, Tesla will have to sell all motor vehicles through middlemen or auto franchise.

Tesla currently carries a Zacks Rank #2 (Buy).

Some other automobile stocks worth considering are Daimler AG ( DDAIF ), Tata Motors Limited ( TTM ) and Toyota Motor Corporation ( TM ). Daimler and Tata Motors carry a Zacks Rank #1 (Strong Buy) while Toyota is a Zacks Rank #2 (Buy) stock.

DAIMLER AG (DDAIF): Get Free Report

TOYOTA MOTOR CP (TM): Free Stock Analysis Report

TESLA MOTORS (TSLA): Free Stock Analysis Report

TATA MOTORS-ADR (TTM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: DDAIF , TM , TSLA , TTM

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