Editor’s Note: This story has been corrected to include the MSRP of the Chevy Bolt, which is $37,500. A previous version of the story incorrectly listed its price as $30,000, which would be the net cost after a full $7,500 federal tax credit.
Tesla Motors Inc (TSLA) stock is down 23% in 2016. Its much-delayed Model X crossover vehicle, the most recent release from the unconventional electric car company, has dragged the TSLA stock price down as investors lament production problems and fed-up customers wait impatiently for their deliveries.
In late 2015 Tesla also lost its glowing recommendation from Consumer Reports, which historically has been an extremely important short-term driver for TSLA stock. When you only sell around 50,000 vehicles per year, external factors like reviews and expected release dates tend to hold more weight than usual.
Point being: Tesla stock is facing plenty of hurdles right now. It doesn’t need another one.
But General Motors (GM) doesn’t care.
GM Trying to Ban TSLA Sales?
Indiana lawmakers are doing their darndest to effectively ban Tesla from competing in the state. A newly proposed bill, supported by GM, would prohibit car companies from selling direct to consumer — a strategy pioneered by Tesla in an industry that heavily favors using franchise dealers for distribution.
By cutting out the middleman and selling straight to consumers itself, TSLA is able to keep more profits for itself.
The rationale behind the bill is that General Motors, Ford (F), and other major automakers are currently prohibited under Indiana law from selling directly to consumers due to a law that says you can’t sell direct if you also have franchise dealerships. The established automakers view this as unfair.
While I tend to side with TSLA on this one — why can’t they just repeal the old legislation instead of proposing new, restrictive and equally unfair legislation — it’s not about what I think is right. If the legislation passes, it could deal a big blow to TSLA.
GM is worried because Tesla’s first affordable ($35,000) mass-market electric vehicle, the Model 3, is set to be released in late 2017. This would go head-to-head with GM’s Chevy Bolt, which has a price tag of $37,500. Both of those prices are before tax credits.
A significant part of the current TSLA stock valuation has to do with the expected debut of the Model 3, which will be the most significant release in the company’s history. And with the legislation seeking to take effect on Jan. 1, 2018, Tesla essentially wouldn’t be able to sell the car at all in Indiana.
Yes, Indiana is just one of the 50 states. But it’s a slippery slope. If lawmakers find it acceptable to pass this bill, more bills in other states could follow, and TSLA stock could take a major hit as its market shrinks before the Model 3 even comes off the production lines.
Tesla investors should watch the progress of this bill (House Bill 1254) carefully, because it matters. If you’re a shareholder and live in Indiana, write your constituents. Your portfolio could depend on it.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
