Back to top

Analyst Blog

Stringent licensing rules imposed by the New Jersey Motor Vehicle Commission (NJMVC) and members of Governor Christie’s administration have placed Tesla Motors, Inc. (TSLA - Analyst Report) in a difficult position. The new regulations approved yesterday ban the direct sales of vehicles by any automaker and necessitate the use of middlemen. However, Tesla employs the direct selling model for its cars. Thus, its sales will be restricted in New Jersey and its existing retail licenses will be cancelled.

Tesla alleged that the new regulation is adopted to protect the monopoly of a special interest group and is against free market operations. After the law is implemented, Tesla will have to sell all motor vehicles through middlemen or auto franchise.

At present, Tesla owns two dealership licenses in New Jersey. Over the last 9 months, Tesla was striving to obtain a new sales license. Meanwhile, the NJMVC delayed the annual renewal of Tesla’s current dealer licenses without mentioning any reason behind it. Now with the approval of the new regulations, these dealerships will have to stop selling Tesla’s cars.

The new laws will hinder the growth plans of Tesla in New Jersey. This will not only mar the company’s results but will also affect the customers and the citizens of New Jersey. Tesla’s planned new dealership would have created job opportunities and helped in economic revival of the state.  

Tesla offers its customers a relatively new technology which provides sustainable transportation. Electric vehicles offer more fuel efficiency and better emission standards compared to the gasoline counterpart.

Apart from New Jersey, Tesla faces sales restriction in New Arizona and Texas as well. These two states have also banned direct selling of cars by Tesla.

Tesla currently carries a Zacks Rank #2 (Buy). Some other automobile stocks worth considering are Daimler AG , Tata Motors Limited (TTM - Snapshot Report) and Toyota Motor Corporation (TM - Analyst Report). Daimler and Tata Motors carry a Zacks Rank #1 (Strong Buy) while Toyota is a Zacks Rank #2 stock.

Please login to Zacks.com or register to post a comment.