Elon Musk is still a long way from settling his lawsuit with Twitter (NYSE:TWTR). But his primary company is now dealing with another lawsuit. Tesla (NASDAQ:TSLA) has filed a motion to challenge a direct sales policy in Louisiana. At present, the southern state does not allow the company to sell EVs directly to buyers. This has forced consumers to travel outside Louisiana to purchase a Tesla. Reuters reports that on Friday, Aug. 26, the company filed a lawsuit, alleging that “Louisiana consumers’ freedom is being unduly restricted by protectionist, anti-competitive and inefficient state regulation.” It comes at a turbulent time for TSLA stock but today’s news isn’t the reason shares are falling today.
What’s Happening With TSLA Stock
Following the recent 3-for-1 stock split, TSLA has struggled to find its market footing. That is not unexpected; Wall Street saw the same performance from Amazon (NASDAQ:AMZN) after its successful stock split in June. While TSLA stock has dipped almost 3% today, that is due mostly to the negative market momentum that has pushed it downwards all week. Additionally, the Nasdaq has been slumping all day, indicating a bad day for tech stocks across the board.
Today’s news out of Louisiana likely isn’t affecting TSLA stock today. But it is still worth a closer look as the result of the lawsuit can affect Tesla sales in the coming months. The policy against which the company is advocating is not new. As The Wall Street Journal reports”
The state ban against selling vehicles directly to consumers went into effect in 2017. Such types of laws were first brought about in the 1950s to stop stores from being arbitrarily shut down by manufacturers. In recent years, they have been used by dealer lobbyists and some car makers who say all stores should be independently owned.
Tesla’s history with state-level sales restrictions is well documented. In 2016, it filed a similar motion against the state of Michigan in response to a similar sales ban. The settlement ultimately went in Tesla’s favor as the court ruled that the company could sell cars to all Michigan residents. Clearly, Musk hasn’t forgotten this victory and he wants to see the same results in Louisiana. History is on Tesla’s side as it gears up to continue expanding its empire. As Yahoo Finance notes: “If Tesla is successful in this lawsuit, the company may use this as another test case to challenge other state bans on direct sales.”
What Comes Next
In a case like this, it is likely that a company with Tesla’s resources will prevail. That type of victory won’t boost TSLA stock too much after the news breaks. But if it helps increase sales for Tesla as the company’s presence in Louisiana grows, shares will rise accordingly. Tesla investors shouldn’t be too worried about this development while they wait for the case to be decided.
Even if Tesla does not prevail, it won’t feel too much pain if the ban on in-state direct sales continues. Demand for Teslas isn’t slowing down.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
