Tesla Is Being ‘Quietly’ Backed By Dealerships: Morgan Stanley

Tesla stockBlomst / Pixabay

Tesla CEO Elon Musk is being ‘quietly’ backed by large auto dealer groups which seek the abolition of franchise law, as this would also aid their businesses, stated analysts at Morgan Stanley in a report released on Wednesday, following their meeting with dealers. This observation from the analysts comes as a surprise as Tesla’s sales model has largely been opposed by dealers.

Dealer franchise laws need a change

The meeting with dealers suggested that U.S. state dealer franchise laws should be updated as they prevents original equipment manufacturers, including Tesla, from selling vehicles directly to customers.

Dealer franchise laws which prevent direct selling of vehicles to consumers are different in every state. Recently, the EV maker had been prohibited from selling cars directly to consumers in Texas, while its direct sales model was approved in Maryland, where it can now open four stores. However, in Connecticut, a bill has been passed by the House of Representatives and awaits further decision from the state’s senate.

Industry groups and several dealership associations have claimed that it is their responsibility to shield customers from price variations and other instabilities. However, big dealers are aware that well-established auto companies do not seek to open up a chain of company-owned stores. Moreover, one of the dealers told Morgan Stanley that the “franchise model works on its own without laws to enforce it” as auto manufacturers are not keen on getting too involved in the sales/services business.

More voices in support of Tesla

Nonetheless, Tesla is the first to speak against the car retail laws. It is predicted that “numerous entities” will also challenge such laws and support Tesla in its state-by-state battle to alleviate restrictions on direct selling to customers, say the analysts. In addition to Texas, the Model S manufacturer is making efforts to sell directly in states such as Michigan and Arizona. Further, the analysts claimed that the U.S. auto industry, a $1 trillion market, might witness mergers in the near future, which could result in more than 10,000 auto groups coalescing to as few as 10 groups.

Currently, Tesla sells and provides services for its products through its own showrooms and stores. It is striving to sell its vehicles directly to its customers. Lately, the EV company has come up with mobile container stores that enable it to reach out to customers in areas where it does not have a store.

Morgan Stanley reinstated its Overweight rating on the company’s stock and has given it a price target of $280.

About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com