U.S. Markets closed

Tesla Supported by Missouri House on HB 1124

Zacks Equity Research

The majority leader of the Missouri House is not in favor of the bill which will restrict Tesla Motors, Inc. (TSLA) from directly sell vehicles to customers in the state. Several House members have expressed concerns about the bill.

Last week, Tesla revealed that some legislators added a provision to a bill, which imposed a ban on the direct sale of vehicles to the public in the state. According to the new provision of the bill, customers can only purchase new vehicles through middleman franchised dealers.

The original bill, HB 1124, has been in circulation since Dec 2013 and was passed by the House on Apr 17, without any ban on direct sales. Recently, the bill was passed by the Senate with altered language, which is entirely different from the original bill.

The original bill dealt with laws regarding all-terrain vehicles, recreational off-highway vehicles and utility vehicles. While the present law restricts franchisors from competing against their franchisees, the amendment in the bill would prohibit direct selling by any auto manufacturer.

Tesla argues that the new law will help dealers to create a monopoly. Earlier it was put forward that dealers play an important role for the customers by taking care of warranty, recall and other service-related issues with the manufacturer, which is lost in case of direct sales.

Tesla, which designs and manufactures electric vehicles and electric vehicle powertrain components for partners such as, Toyota Motor Corp. (TM) and Daimler AG (DDAIF), 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 of electric vehicles and facilitates higher sales.  

The bill, which is passed by the Senate, needs to have the final vote from the House. However, the House members believe that this will restrict free market operation and lead to unintended consequences. Thus, the majority leader does not plan to pass the bill. This news should provide relief to Tesla, which has been facing opposition to its direct-selling model in some states.

Tesla currently carries a Zacks Rank #5 (Strong Sell). Volkswagen AG (VLKAY), a Zacks Rank #1 (Strong Buy) stock, is currently performing well in the automobile industry.

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

Zacks Investment Research