Tesla Motors, Inc. TSLA notified Connecticut legislators that it is willing to make certain compromises in its sales strategy to pursue direct sales in the state, per media reports. The automaker believes that these compromises will help lawmakers of the state to pass a bill this year that allows direct vehicle sales.
Under the compromise, Tesla will restrict the number of sales locations in Connecticut to a maximum of five. In addition, the automaker will abide by the language of the bill, which allows direct sales only to automakers that make only electric vehicles and do not use any independent franchise dealers.
Currently, Tesla operates only a repair shop in Milford, CT. However, as direct sales to customers are restricted by state law, customers need to purchase its vehicles from other states. If the bill is passed and becomes a law, it will be the most stringent limit on Tesla in the 35 states where the company is allowed to sell vehicles directly.
However, the Connecticut Automotive Retailers Association believes that there is a massive loophole in Tesla’s proposal. If the proposal is passed, it will be possible for any of the other 32 existing automakers to create a new entity and sell their vehicles directly to customers. Moreover, major automakers of India and China that do not currently operate in the market will also gain advantage from the loophole. In addition, the proposal will create job risks for 13,000 workers in Connecticut.
The Connecticut franchise law was framed in order to protect car dealerships from unfair competition from car manufacturers. But this proposal by Tesla will endanger the intention behind the law.
Currently, Tesla carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Superior Industries International, Inc. SUP, Wabash National Corp. WNC and Allison Transmission Holdings, Inc. ALSN, all sporting a Zacks Rank #1 (Strong Buy).
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