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Tesla Is Becoming Too Popular for North Carolina Lawmakers

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The state has introduced a bill that would effectively ban the sales of Tesla vehicles.

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Tesla Motors (NASDAQ:TSLA) is on a roll. After shaking off the controversy of the questionable New York Times review of its Model S sedan earlier in the year, the electric vehicle maker reported its first ever profitable quarter on May 8, sending shares soaring ever since.

The stock is up 72% in May and 174% year-to-date, with Tesla's market cap now larger than the market caps of Fiat (OTCMKTS:FIATY) and Peugeot (OTCMKTS:PEUGY). Earlier today, Morgan Stanley analyst Adam Jonas even raised his price target on Tesla to $103 from $47.

The Tesla Model S
"What Tesla has accomplished isn't luck, it's real. Many funds approach an investment opportunity by first asking: Does the company do something better or cheaper than anybody else? Tesla is beginning to convince the market it may do both. Competency in technology is migrating to engineering, manufacturing and marketing. Detroit, Munich, Wolfsburg, and Toyota City must feel a sense of astonishment… with a hint of anxiety," wrote Jonas in his report.

Such is the surging momentum of the Elon Musk-led company that auto dealers in North Carolina are trying to ban the sales of Tesla in the Tar Heel State.

The North Carolina Automobile Dealers Association is backing a bill that has been unanimously approved by the state Senate's Commerce Committee that would make it illegal for carmakers to skip dealerships and sell vehicles directly to customers.

Given that Tesla is the sole US auto company that has a direct sales business model, it's obvious that this legislative proposal is targeted at the Silicon Valley-based company.

"They're trying to insulate the dealer franchise model from any competition," said Diarmuid O'Connell, Tesla's vice president for corporate and business development, according to the News & Observer. "It's a protectionist move to lock down the market so we have to go through the middleman – the dealer – to sell our cars."

How popular is the Tesla? In North Carolina alone, 80 Tesla vehicles have been sold, with the bulk of sales coming from online purchases, and 60 more orders are pending. Countrywide, the Model S actually outsold comparable luxury cars like the BMW (ETR:BMW) 7 Series, the Mercedes S-Class, and the Audi (ETR:NSU) A8 in the last quarter.

Robert Glaser, president of the North Carolina Automobile Dealers Association, told the News & Observer that his association would have no qualms with Tesla so long as the company would start selling cars through licensed dealerships. His argument is that the local community, of which North Carolina's licensed dealers form an important part, could be hurt if Tesla's precedent of direct sales caused dealership job losses.

"You tell me they're gonna support the Little Leagues and the YMCA?" Glaser asked, referring to Tesla.

The bill, sponsored by Republican Senator Tom Apodaca, now awaits passage in both the Senate and the House.

Twitter: @sterlingwong
No positions in stocks mentioned.
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