Tesla (TSLA) was back in the headlines last week. And this time, Tesla stock investors got some potentially positive foreshadowing last week, thanks to a new blog post from a few members of the Federal Trade Commission (FTC). In the post, Andy Gavil, Debbie Feinstein, and Marty Gaynor defended Tesla’s direct sales model — a model that has come under criticism and actually been shot down in some states.
Remember, in early March, New Jersey’s Motor Vehicle Commission approved a measure to enforce an already-existing ban on direct sales. Several other states have a similar ban on the books, and the issue continues to stir up debate.
The FTC post defending this direct sales model published on Thursday morning, but despite the seemingly positive sentiment, Tesla stock lost 4% between Thursday’s opening bell and Friday’s close.
Of course, that likely had little to do with the blog post, as shares of Tesla stock have been sliding for some time. Since the start of March, Tesla stock has slid about 20%.
Then again, looking at the glass half full, remember that Tesla stock still had year-to-date gains of more than 32% on the books as of the end of last week, despite the recent weakness. Meanwhile, the broader market has barely budged in either direction.
The blog post wasn’t enough to reverse the downward slide of Tesla stock, likely because auto sales are mostly regulated at the state level. And the fine print of course reminded readers that the post does not necessarily reflect the views of the whole commission. But the post is definitely some nice ammo — and vindication — on the behalf of TSLA.
With that in mind, Tesla stock investors may be interested in these notable points in the FTC members’ defense of direct auto sales.
In Defense of Tesla Direct Sales
Change is good: “American consumers and businesses benefit from a dynamic and diverse economy where new technologies and business models can and have disrupted stable and stagnant industries, often by responding to unmet or under-served consumer needs.”
Tesla is not a true threat. “Out of 15 million cars sold in the U.S. in 2013, Tesla accounted for a little over 22,000. This hardly presents a serious competitive threat to established dealers.”
Good intentions, bad result: “When the automobile industry was in its infancy, auto manufacturers recruited independent, locally owned dealers to reach consumers in localities across the country. State laws progressively embraced wide-ranging protections for these dealers due to a perceived imbalance of power between the typically small local dealers and major national manufacturers. These protections expanded until in many states they included outright bans on the sale of new cars by anyone other than a dealer—specifically, an auto manufacturer. Instead of ‘protecting,’ these state laws became ‘protectionist,’ perpetuating one way of selling cars—the independent car dealer.”
Objection, relevance: “Dealers contend that it is important for regulators to prevent abuses of local dealers. This rationale appears unsupported, however, with respect to blanket prohibitions of direct sales by manufacturers. And, in any event, it has no relevance to companies like Tesla.”
Competition should be king: “How manufacturers choose to supply their products and services to consumers is just as much a function of competition as what they sell — and competition ultimately provides the best protections for consumers and the best chances for new businesses to develop and succeed. Our point has not been that new methods of sale are necessarily superior to the traditional methods — just that the determination should be made through the competitive process.”
Back to the fine print: “The views expressed are their own, and do not necessarily reflect the opinion of the Commission or of any individual Commissioner.”
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.