Tesla Motors Inc Has Many Options In Battle With Dealers

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Tesla Motors Inc (NASDAQ:TSLA) is facing numerous hurdles from auto dealers across the United States. As many as five states have blocked the electric vehicle maker’s direct sales model, and another two states have put some restrictions. Experts fear that New York could be the next state to ban Tesla from selling its cars directly to customers. To gain perspective on the issue, Wedbush Securities analysts Craig Irwin and Min Xu discussed the issue with Aaron Jacoby, who heads the automotive group at Arent Fox LLP. Wedbush has an Outperform rating on Tesla with a 12-month price target of $295.

Tackling the New Jersey issue provides an early test case for Tesla

Jacoby, speaking with Wedbush, outlined the major arguments against the dealership model, namely, that dealerships are costly and outmoded, and they create a monopoly. He says that the dealership model has certain strengths, but future evolution of the dealership system is inevitable. New Jersey recently modified the dealer licensing laws. It would provide an early test case for challenging bans against Tesla Motors Inc (NASDAQ:TSLA)’s model. Irwin and Xu said they expect Tesla Motors to take both legislative and court actions to fight auto dealers.

Aaron Jacoby said there will be definitely be some constructive ways to resolve the issue. It may start with a national level association such as the Association of New Motor Vehicle Boards and Commissions. Wedbush remains bullish on Tesla Motors Inc (NASDAQ:TSLA) despite bans in several states. The research firm is betting on the long-term battery cost reduction when the Gigafactory becomes operational, and the Gen-III vehicles at an affordable price tag.

Tesla unlikely to adopt the dealership model

Tesla Motors Inc (NASDAQ:TSLA) is unlikely to adopt the dealership model in the U.S. The company said that the electric vehicle is a relatively new concept and it needs to educate customers about the technology and green cars. Moreover, Elon Musk has a unique sales model. Tesla takes care of its customers exceptionally well. Auto dealers usually have a hard-hitting sales pitch, which Elon Musk doesn’t endorse. The high-pressure sales tactic of auto dealers is completely at odds with Tesla’s relationship-building approach. So, going ahead with a dealership model may hurt its reputation.

Tesla Motors Inc (NASDAQ:TSLA) shares ticked up 0.84% to $222.30 in pre-market trading Wednesday.

Update (March 27th, 11:37 AM): This article has been updated to better reflect the opinions of Aaron Jacoby.  In the original article, he was misquoted as holding a certain opinion himself, when in fact he was merely outlining the broad-strokes criticisms that have been leveled at dealerships in the past.

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