Will Tesla Motors Inc (TSLA) Adopt Dealerships Before Any Other States Join The Ban List?

Tesla Motors Inc (NASDAQ:TSLA) was against the dealership-model and opted for dealer-free model, claiming that the dealership-model might not work well with electric vehicles. Tesla motors could also see larger profit margins with the dealer-free model that the company is currently operating at. The auto-dealers around the US are infuriated with Tesla’s decision to go with dealer-free model and are trying to push for a law which bans the companies directly selling cars to customers, quoting the anti-competitiveness reasons. Four states have already banned dealer-free model of Tesla Motors Inc (NASDAQ:TSLA); Texas, Arizona, New Jersey and Maryland. Michigan is the latest addition to the list. A ‘Washington Post’ article describes details of Michigan’s upgraded law against Tesla Motors Inc (NASDAQ:TSLA) and its implications.

Elon Musk

Michigan Governor, Rick Snyder has signed a legislative bill on Tuesday, which bans Tesla Motors Inc (NASDAQ:TSLA) from directly selling its vehicles to consumers in a dealer-free model. In the other four states which bans the dealer-free model, Tesla was allowed to display the vehicles to consumers in galleries, but the upgraded law in Michigan even bans the option for Tesla. None of the state laws has explicitly banned Tesla Motors Inc (NASDAQ:TSLA) from selling its cars, but bans the dealer-free model which the company follows. Though, the law cannot stop the company from selling its vehicles online.

Question among consumers is that why this law is applicable only to auto makers and not to phone makers like Apple Inc. (NASDAQ:AAPL) or the cloth sellers like Gap. Snyder’s support statement for the bill stated that it was just to strengthen the existing law. Article talked about the fact that four out of five state Governors, who are Republicans, except for Maryland’s Governor, O’Malley who is a Democrat.

For other industries, Snyder though is pretty much against the laws that prevents competition and affect the growth in that sector. But what is wrong with the automotive industry. This is a new story though, many former Republican politicians have slated laws which hugely favor the auto dealers. Starting from Ronald Reagan as Governor of California in 1973 till George W. Bush as Governor of Texas who first imposed the law against dealer-free sales of automobiles, this has been a continuing story of Republicans making laws to hinder the auto maker’s growth.

But what will be Tesla Motors Inc (NASDAQ:TSLA) reply to this increasing problem of not being able to sell its vehicles locally? With lower volume of sales, Tesla Motors Inc (NASDAQ:TSLA) could continue with the dealer-free model and sell, but when the more anticipated Model X launches and the volume of sales goes up, they might have to reconsider adopting the dealer based model.

 Disclosure: None

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