Tesla Motors Inc (TSLA): Why a Plant in Texas Makes Sense

Last week, Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk teased the idea of building a Tesla Motors Inc (NASDAQ:TSLA)manufacturing plant in Texas. There’s no denying that this idea seems far-fetched, ludicrous even, given Tesla Motors Inc (NASDAQ:TSLA)’s resources today. However, if we look five-plus years out, this could not only be a reality for Tesla Motors Inc (NASDAQ:TSLA), but also enable the company to better control costs and boost sales.

Tesla Motors Inc

The electric-car maker, which currently operates a single factory, located in Fremont, Calif., is facing opposition from the Texas Automobile Dealers Association. It’s not surprising than that Musk would attempt to lure lawmakers to his side with the promise of one day opening a factory in Texas for building electric trucks. Nevertheless, I think there’s more to this than merely an empty bribe.

An unfair disadvantage
Here’s the problem: Tesla Motors Inc (NASDAQ:TSLA) needs Texas if the EV maker’s disruptive retail strategy is to succeed down the road. As the second-largest and second-most-populous state in the U.S., Texas is a market that Tesla simply can’t afford to ignore. Unfortunately, the Lone Star State has strict laws in place that currently prohibit Tesla from selling its cars directly to consumers.

Tesla Motors Inc (NASDAQ:TSLA) and its outspoken CEO are up against the Texas Automobile Dealers Association, which claims that allowing Tesla to sell directly to Texas consumers would open the floodgates for other companies to do the same. Come on; is that the best argument they could come up with? An easy workaround would be for Texas legislators to make an exemption for Tesla, rather than amending the franchise laws currently in place.

For now, Musk is making the argument that Tesla isn’t, in fact, capable of violating state franchise laws since the company has no franchised dealers. This is an important distinction, particularly because auto giant Ford Motor Company (NYSE:F) has tried and failed in the past to buy out some of its auto dealers who were underperforming. For a massive auto manufacturer like Ford Motor Company (NYSE:F, one benefit of the franchised model is that it helps Ford reduce inventory-carrying costs, according to a report by Forbes.