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2 ETFs in Focus Following Tesla's NJ Sales Ban

Zacks Equity Research

The popular maker of electric cars, Tesla Motors Inc. (TSLA), recently faced some stiff restrictions from the state of New Jersey, which has banned the direct sale of automobiles in the state.  

The law necessitates the use of middle-men or franchised retail dealers to sell cars in the state. The majority of car makers use middle-men to sell their cars. However, the recent move is expected to hurt the electric car industry. It will definitely jeopardize Tesla’s growth plans given that it has only two stores in the state.

New Jersey has become the third state to ban Tesla from selling cars directly to consumers. Arizona and Texas had earlier placed restrictions on Tesla directly selling cars to customers (read: Solid Tesla Earnings Put These ETFs in Focus).

Tesla believes that it is imperative to sell the cars directly to consumers in order to properly educate them about the relatively new technology. The company is believed to have already begun negotiations with New Jersey lawmakers about amending the current law.

Market Impact

Though Tesla’s shares prices had dipped around 2% to close at $234.41 on the day the news was made public, its shares have recovered somewhat and closed at $237.79 in yesterday’s trading session. The company’s share prices might be volatile in the coming days; however, investors can use these dips to accumulate Tesla shares.

This is especially true because Tesla currently has a favorable Zacks Rank of “2”, suggesting that its outperformance is expected to continue in the coming months as well.

The stock has returned an outstanding 325% in 2013, beating all the popular market indices. Moreover, the stock is up 58.4% since the start of the year. The company is witnessing rising sales on the back of its impressive product portfolio.

Moreover, the company is actively undertaking international expansion to further boost its sales.  Tesla’s Model S has been named as the top car for 2014 by a leading magazine.

While purchasing the stock is certainly an option, investors can also own the shares by purchasing ETFs having an exposure to the stock. Below we have highlighted two ETFs that have double-digit exposure to Tesla Motors.

Investors should keep a close eye on these ETFs and can use the dips as a buying opportunity. While QCLN has lost around 1%, GEX has lost 1.6%, since the ban was made public (read: all the Alternative Energy ETFs here).

NASDAQ Clean Edge Green Energy Index Fund (QCLN)

The fund tracks the NASDAQ Clean Edge Green Energy Index and manages an asset base of $194.7 billion.
The fund holds a small basket of 42 stocks and Tesla occupies the top spot among them. QCLN has 12.55% exposure to Tesla, being the only stock with double-digit allocation. Linear Technology Corporation (7.44%) and Cree, Inc. (6.96%) are the other two stocks in the top three spots.

The fund has delivered a stellar return of 82% in the last one year. The fund currently has a Zacks ETF Rank #1 (Strong Buy) and is expected to continue with its outperformance.

This is especially true as the alternative energy sector is currently one of the booming industries in the energy sector, given concerns about carbon emission, climate change plans and other environmental issues (read: A Beginner's Guide to Alternative Energy ETFs).

Market Vectors Global Alternative Energy ETF (GEX)

GEX too focuses on the alternative energy sector and tracks the Ardour Global Index. The fund is home to 31 stocks and Tesla Motors (13.79%) occupies the top spot here as well. Like QCLN, this fund too has double-digit exposure to only Tesla Motors.

The fund is heavily weighted to the Industrial and IT sectors, which together comprise around 70% of the fund assets. Country wise, the fund has 60% exposure to U.S. stocks, while China (10.1%) and Denmark (8%) are the other two counties in the top three.

The fund has returned quite well last year, adding 60.4% in 2013. Moreover, the fund is up 9.3% this year (read: 5 Best Performing ETFs of the 5 Year Bull Run).

Bottom Line

It is quite clear that the huge exposure to Tesla Motors in the above ETFs has worked quite favorably for them. Given the promising alternative energy sector and the fact that Tesla is expected to continue to outperform, investors can look forward to gain from any surge in this space from the above two ETFs.

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