Will This Crush Tesla Stock?
Tesla Motors Inc (NASDAQ:TSLA) has a new threat to tackle. In question is not competition, but survival. Holders of Tesla stock need to be on their guard and brace themselves for a fight.
Tesla has a unique selling model. The company takes orders directly from customers, and then builds and delivers to order. It’s a direct B2C (business to consumer) selling model.
So far, this model has worked for the company. Tesla has managed to become a premium brand with little to no advertising. I cannot think of another company that has achieved brand recognition comparable to Tesla’s.
But, of course, with fame come foes.
Republican Kevin Mahan, who is an Indiana State Representative, has proposed a bill against Tesla, which is being dubbed the “Kill Tesla” bill. The bill is being backed by Tesla’s archrival, General Motors Company (NYSE:GM). I say “archrival” because only a month ago, General Motors showcased an electric vehicle (EV) that is similarly being touted as the “Tesla killer.”
Call me a skeptic if you must, but the timing of this move could not have been purely coincidental. GM’s EV “Chevy Bolt” is expected to hit the market around the same time as Tesla’s “Model 3.” The two cars will be in direct competition on the markets.
Now, under this “Kill Tesla” bill, Tesla will be forced to change its business model. The company will, under force, have to sell its cars through franchised dealerships, just like any other automaker. Otherwise, the company will have to bid adieu to its market in Indiana.
According to Kevin Mahan, this bill is more of an insurance policy that will protect the prospective Tesla buyers in his constituency. Mahan says that Tesla’s direct selling model could work for the expensive models; however, as the company gears up to launch the cheaper Model 3 this year, average buyers should be given a change to visit a local dealership in order to make an informed decision. (Source: “Tesla Battles GM Over Right to Sell Cars in Indiana,” Bloomberg, February 24, 2016.)
Of course, Tesla contends Mahan’s reasoning. This is what Tesla’s vice president of business development, Diarmuid O’Connell, had to say in the company’s defense:
“General Motors made a decision in the early part of the last century about their business model. I see no reason why, under general free-market principles, Tesla shouldn’t have that same right.” (Source: Ibid.)
Recall that only two weeks ago, former GM executive Bob Lutz went on record to call Tesla Motors a lousy business. He also suggested selling TSLA stock. (Read “TSLA Stock: Tesla Motors Inc Is a ‘Lousy’ Business.”)
GM’s repeated attacks on Tesla could only mean one thing: the former feels threatened by the latter and is doing everything in its capacity to stall Tesla’s growth. These gimmicks only validate Tesla’s superior hold over the EV industry, and will certainly bring in more support for Tesla.
The Bottom Line on TSLA Stock
They say that if everybody likes you, you’re doing something wrong. In Tesla’s case, the company must be doing everything right. GM’s ploys will only land itself in hot water.
Tesla has already called upon its customers to support its company. I’m calling upon holders of TSLA stock to do the same.