Tesla May be Allowed to Directly Sell in New Jersey - Analyst Blog

Tesla Motors, Inc. TSLA may soon be permitted to directly sell its cars in New Jersey. The New Jersey Assembly unanimously voted in favor of a bill that allows direct selling by zero-emission vehicle manufacturers that were licensed by the State Motor Vehicle Commission before Jan 1, 2014, provided they run a service center in the state.

However, the bill still needs to be approved by the New Jersey Senate before it becomes a law. Zero-emission vehicles include electric and fuel cell cars.

In March, new regulations approved by the state Assembly banned the direct sale of vehicles by any automaker and necessitated the use of middlemen. Tesla, which was forced to close its two stores in the state, had filed an appeal against the regulation. If the new bill is approved, Tesla will not only be able to sell cars in the state, but might also increase the number of stores to four.

The automaker is facing opposition to its direct-selling model in numerous U.S. states. While many states have allowed the automaker to directly sell its vehicles, some have banned the direct sale of vehicles by any automaker. Apart from New Jersey, Texas and Arizona have also prohibited direct selling of vehicles. This restricts Tesla's ability to sell cars, as it has to rely solely on online sale in such states.

Even in New York, the company is not allowed to open new stores, although the five existing stores have been permitted to sell cars. Tesla will have to use the dealership model for new stores in the state.

Tesla believes that direct sale reduces the price and encourages buyers to opt for electric vehicles. Use of a dealer network not only reduces the profit margin of Tesla but also affects its sale as car dealers may not spend the time required to inform consumers about the benefits of electric cars.

Tesla currently carries a Zacks Rank #4 (Sell). Some better-ranked automobile stocks worth considering include Fox Factory Holding Corp FOXF, Gentherm Incorporated THRM and Tower International, Inc. TOWR. All these stocks sport a Zacks Rank #1 (Strong Buy).