Tesla Motors Inc. (TSLA) has long been a point of contention between investors. TSLA stock is up more than 55% since Jan. 1, 2014, and up more than 1,100% since its 2010 initial public offering … but many bears say the buying in Tesla stock is overdone, and expect the electric vehicle giant to fade in a hurry.
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However, the latest fight over Tesla isn’t in regards to its stock price — but instead in regards to the ability for the automaker to sell its Model S electric vehicles directly to customers.
Michigan became the latest state to ban direct sales of autos last week, requiring automakers to record transactions through a dealership. Since Tesla doesn’t have any affiliated dealers and relies on a direct sales model, the move is effectively a crackdown on TSLA that doesn’t harm entrenched automakers like General Motors Company (GM) or Ford Motor Company (F) that have long used dealers to record sales. That brings the total number of states with a direct sales ban up to 26.
And as you can see in this map, posted in a forum on TeslaMotors.com by user ccbldg, the regions banning Tesla sales are substantial — and that could cause headaches for TSLA stock investors by crimping sales in the future.
TSLA Stock – Does Access Matter?
Critics say the laws are fueled by special interest groups funded by franchised dealers in an effort to simply squeeze Tesla stock because it’s a competitor. Proponents say the laws are intended to protect domestic automakers by prohibiting foreign automakers in China coming in to set up pop-up shops, and that the law also protects vehicle manufacturers by allowing them to expand quickly without the burden of carrying a lot of inventory.
Still, it’s hard to see a direct sales ban in the backyard of Big Auto and not think that the bottom line here is propping up local companies that contribute to local politicians.
Regardless of the politics, however, it’s important to realize that some of the kerfuffle over Tesla direct sales is overdone. TSLA stock has been on a tear not just because of sentiment, but because it is up to its ears in back orders and is constrained by supply and production — not demand — for the Tesla Model S sedan or the upcoming Tesla Model X SUV.
Consider that last quarter the company was sitting on $228 million in customer deposits. While there’s no easy way to calculate how many vehicles that adds up to, if the typical deposit is $7,000 (which I think is rich), that adds up to 32,500 Teslas already sold.
TSLA stock investors expect a production target of 35,000 vehicles for 2014 — meaning the backlog is good for almost all of this year’s sales!
If that’s not enough, consider these deposits are up from $163 million at the end of last year, a nearly 40% jump in six months.
If that kind of demand has been pushing the company higher even amid this environment, just imagine what could happen if TSLA stock does get a favorable ruling from the Federal Trade Commission regarding the legality of sales bans; the EV manufacturer petitioned the FTC earlier this year to step in, and indications have been favorable for Tesla.
The bottom line is that while the sales bans are unfortunate, they are certainly not a death blow for Tesla sales.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
