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

While fewer inventories on the balance sheet may be better for a company such as Ford, it’s not always better for the customer. In fact, a study by the U.S. Department of Justice found that auto franchises actually increase the cost to purchase a vehicle.

Winning over the lawmakers
Despite the many reasons it makes sense for both consumers and the economy for Tesla to operate in Texas, it won’t be easy for the company to get its way this time — whereas other states, including New York, Florida, New Jersey, California, Colorado, Oregon, Washington, and Massachusetts, have ruled in Tesla’s favor.

Perhaps a smarter way for Tesla to win the favor of state lawmakers would be to lay out a plan to build a Texas-based manufacturing plant in the future, thereby investing tens of millions of dollars in Texas. Musk was on the right track when speaking with state legislators in Austin last week; Tesla’s CEO highlighted how a Texas-based facility could help the company minimize logistics costs.

However, David Kiley, editor-in-chief of AOL Autos, points out that local dealers, particularly in Texas, are known to spend a significant amount of money on politicians at the state level to keep these franchise laws in place. With Texas dealers holding so much power, it’s not surprising that Musk is pushing the possibility of an electric truck and Texas-based manufacturing plant to the table.

To really drive the point home, Musk explained, “if we were allowed to go direct, I think we would make Texas on par with California in terms of emphasis.” Musk has so far followed through on every promise he’s made at the company, and I don’t see why this would be different.

The article Why a Tesla Manufacturing Plant in Texas Makes Sense originally appeared on Fool.com.

Fool contributor Tamara Rutter proudly owns shares of Tesla Motors. The Motley Fool recommends and owns shares of Ford and Tesla Motors.

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