Why You Shouldn’t Worry If Texas and Tesla Can’t Get Along
The serial soap opera that is Elon Musk and You’re here (TSLA 1.72%) took another turn last December, when the billionaire entrepreneur thumbed his nose at California and said he was moving Tesla’s headquarters to the huge factory he was building in Texas. Tesla said the move would create 5,000 jobs in Texas with an average annual salary of $47,000. Tesla, on the other hand, would be freed from costly California regulations and receive tax breaks of up to $64.7 million.
It seemed like a good deal for both parties, but rather than say thank you, Texas recently barred Tesla from a rebate plan that rewards electric vehicle (EV) buyers, and it continues to make it difficult to buy. of Teslas by Texans. Here’s why investors shouldn’t worry too much about this seemingly soured relationship.
No refunds in Texas for Tesla buyers
The Texas EV rebate program gives a $2,500 rebate to buyers of electric vehicles produced by all major automakers except Tesla. A total of 142 different models are eligible for the rebate, but not the best-selling electric vehicles in the world: those of Tesla.
When asked why Tesla was excluded from the Texas rebate program, Laura Lopez, the spokeswoman for the Texas department that administers the rebate program, said: “Under Texas law, vehicles purchased directly from the manufacturer or from an outside or state dealer not licensed to sell or lease new vehicles in Texas, are not eligible for rebate.”
While many states that offer franchise new-car dealerships protection from competition from direct sales have made concessions to Tesla, Texas has not. State law requires all new auto buyers to purchase through a franchised dealership. If you’re a Texan and you fancy a Tesla, you have to go to another state to buy one, or have the sales paperwork processed in another state.
Texas first passed protectionist dealer laws in the 1930s. The regulations prohibited the sale of cars to consumers by anyone other than a franchised dealer. In the wild and woolly early days of the auto industry, the laws may have offered some protection to consumers against the possibility of buying a car that was counterfeit or could not be repaired. But these laws have long since lost their usefulness and now only serve to protect a monopoly which, no doubt, defrauds consumers. The National Automobile Dealers Association champions these regulations, and in support of them, its PACs have paid more than $45 million nationwide to political candidates and organizations, Democratic and Republican, since 1990, and have spent more than $68 million dollars in additional lobbying efforts.
Elon Musk has tried several times to get the Texas legislature to authorize the direct sale of automobiles. In 2015, while courting the legislature, he indicated that Tesla might build a factory in Texas. He built that factory and moved his headquarters to Texas, but the state legislature did nothing. None of that seems to have deterred Musk so far.
Car buyers still love Tesla
Neither the lack of discounts nor the barriers to buying a Tesla in the Lone Star State are likely to significantly affect the company’s sales in the state. The rebate program is limited to 2,000 electric vehicle buyers, a limited number for an automaker that will likely sell well over a million vehicles worldwide in 2022. At least one analyst predicts Tesla sales of 2 million for the calendar year. Tesla is also on track for strong U.S. numbers this year, racking up domestic sales of around 150,000 cars in the first quarter.
Apparently, quite a few Tesla buyers reside in Texas, even if their vehicle purchase was registered in another state. As of April 2022, 52,190 Teslas were registered in Texas. Only California and Florida can claim more Tesla registrations.
Wall Street jitters sent Tesla stock price crashing
While car buyers love Tesla, Wall Street has, at least for now, fallen in love with the company. Tesla stock has fallen about 35% since Musk announced his deal to buy Twitter. Musk’s vast holdings of Tesla stock were used as collateral to back up loans he took out to fund the recurring purchase of Twitter. This apparently makes investors nervous.
But the company’s cars continue to sell in Texas and elsewhere, and Tesla’s stock price appears to have stabilized in recent weeks. Tesla posted record first-quarter sales despite rising raw material costs, and the company delivered 68% more vehicles year-over-year. With 46% of the automaker’s revenue spent on research and development in the first quarter, its continued progress looks likely, raising the odds that shares will rebound going forward.