Could Auto Dealers Thwart The Sharp Rise Of Tesla Stock?
James Dennin, Kapitall: Auto dealers don't like Tesla, and the feeling is mutual. Could Tesla stock be threatened?
It's like something out of House of Cards. The New York State legislature is considering a law that could impact Tesla's (TSLA) ability to sell cars in the Empire State. The law looks virtually identical to laws that are already on the books in Texas and Ohio, which require car companies to sell to auto dealers who then sell to the consumer.
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The law purportedly protects consumers. Advocates say that Tesla, which operates its own showrooms, would have lower overhead and undermine the competition. Besides, they say, most auto companies sell electric cars now. So to say it's an anti-electric car bill is assuredly an over-simplification.
But this is counterintuitive. Why make it against the law to sell cars without a middle man? Wouldn't that make it more expensive for the consumer and not vice-versa?
Unfortunately, there's a very simple explanation for this, and it has to do with the sway auto dealerships have on local governments.
In Texas the situation is particularly strident. Auto dealers spent twice as much as Tesla lobbying the legislature, and some prominent dealers spent as much as $300,000 through candidate donations and political action committees (PACs).
Elon Musk, by contrast, donated about $7,500 to lawmakers, mostly to gain allies for his SpaceX project.
But there can be no doubt that Tesla will have a harder time breaking into markets where these laws are on the books. And for a company that already sells a product with a luxury price tag above $100K, that could mean trouble.
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