Should Tesla Worry About its Red State Ban?

Tesla Model S At The Geneva Motor ShowTesla Motors the manufacturer of electric cars and electric vehicles has been banned from selling directly to the costumers or opening up a showroom in any of the red states. However they can have stores, galleries, superchargers and service centers in these states. The Governor announced that Tesla Motors is allowed to only sell through various other automobile dealerships. It cannot sell its products through business to costumer channel but rather through large dealerships, for example you can visit a Tesla Mall in New Jersey, but you cannot order or take a test drive according to the law.

The buyer in these states can purchase through; the purchased item then gets delivered to the address of the customer’s choosing. The main reason for this restriction is that Tesla Motors would become a direct threat to the car dealership model. In car dealership process cars are sold at the retail level by local distribution channels consisting of various small businesses. The republicans consider it a direct threat to these small businesses.

The most recent ban was imposed by the State of Michigan, which according to some reports was a huge favor to General Motor’s, a strong rival of Tesla Motors. According to a spokesperson, Charles Cyrill if the retails are owned by the industry or firm itself then the costumers will lose all bargaining power.

Ohio state has also recently passed a bill but it is in favor of Tesla Motors allowing the company to sell its cars directly; however the bill is yet to be signed. Steve Chapman further says that it is not just a problem in one or two states, it has become a problem for the whole Country now and the competition is being crushed by using the power of money.

The company has a network of 60 different locations in 23 states across America but now some of them cannot sell directly. This in general has started to affect Tesla’s profit margin along with its market expansion in the Red States.

The company has been posting huge revenues since 2009. In 2009 its sales revenue was $111.94 Million, in 2010 it made $116.74 Million, in 2011 it made $204.24 Million; whereas in 2012 its revenue rose to $413.26 Million and then in 2013 it crossed $2.01 Billion. The financial reports indicate Tesla’s steady and positive progress, thanks to company’s able leadership, but if the ban continues and more states join in then it will surely impact Tesla’s overall sales and the company’s markets has a possibility of taking a huge hit.

This scenario however is dependent on a few factors, which include emergence of a strong competitor in the electric vehicles category, which will bring down the prices of the vehicles and eliminate Tesla’s monopoly; this factor will come into play in the long run. Currently the company enjoys high consumer demand that allows it to make more by supplying fewer units; however with more than one competitor the company will be forced to bring down prices and that will have an impact on its overall sales. The second factor, as mentioned before, is the joining in of more states.

Should Tesla worry about Red States? The answer is simple; in the long-run yes!


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