U.S. Markets close in 3 hrs 23 mins

Arizona Opens Door for Tesla

Zacks Equity Research

After facing sales restriction in New Jersey and Ohio, doors opened for Tesla Motors, Inc. (TSLA) in Arizona. According to a bill approved by the Senate committee of Arizona, Tesla will be allowed to directly sell its vehicles in the state without any dealer network.

However, the House Bill 2123 supporting direct sales of Tesla, has been opposed by the traditional auto manufacturers and dealers. They believe that this will adversely affect consumers’ interest if the company goes bankrupt.    

However, the Senate believes that this bill will simplify the process of vehicle purchase. Tesla has a showroom in Scottsdale, which only displays vehicles but is not allowed to sell under a 2000 law. Thus, Tesla is only able to sell in the state through online orders. This, to some extent, hampers the sales of the company.

Recently, Tesla faced 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. The implementation of the new law will not only mar the company’s results but will also affect customers. The law was supported by the argument that dealers play an important role, which is lost in case of direct sales. Dealers take care of warranty, recall and other service-related issues with the manufacturer for the customers.

The new regulations approved recently in New Jersey also ban the direct sales of vehicles by any automaker and necessitate the use of middlemen. Thus, Tesla’s sales will be restricted in New Jersey and its existing retail licenses will be cancelled. The automaker faces sales restriction in New Arizona and Texas as well. These two states have also banned direct selling of cars by Tesla.

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

Some other automobile stocks which are performing well and are worth considering include 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 Zacks Rank #2 stock.

Read the Full Research Report on TM
Read the Full Research Report on DDAIF
Read the Full Research Report on TTM
Read the Full Research Report on TSLA

Zacks Investment Research