‘Against the law’ for automakers to sell cars like Tesla does

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The Tesla dealership in Eatonville, Florida is seen on March 1, 2019, the day after Tesla announced that it was closing its retail stores as a cost-cutting measure, in a shift to on-line only sales.

Tesla’s announcement last week that it is moving sales fully online “is a major event in U.S. auto retailing” because traditional automakers still need to go through physical dealerships, Morgan Stanley analyst Adam Jonas said in a note to investors on Tuesday.

“From our discussions with [traditional automakers] over many years, most auto companies would love to sell vehicles the way Tesla does. There’s just one catch. They can’t. It’s against the law,” Jonas said.

Jonas is widely followed on Wall Street for his thoughts on Tesla and electric vehicles.

Across the U.S., state laws require car makers to sell new vehicles through dealers.

“Tesla is the only OEM to our knowledge that is allowed to sell its wares through company owned stores,” Jonas said. “Tesla is now trying to take this a major step further to be the only [automaker] to sell new cars directly to consumers on-line without the involvement of a physical dealer.”

Morgan Stanley believes that U.S. auto dealers, through regulatory representatives, “may resist this tactic,” Jonas said. But, because Tesla does not technically have any dealer franchises, and already sells without dealerships, Tesla’s move online will likely also be protected, Jonas expects. If this change works, and Tesla sees the cost savings the company expects, Jonas said Elon Musk’s electric company may be a catalyst for automakers to reevaluate existing regulations.

“Then investors should look for a revival of the debate around auto dealer franchise laws,” Jonas said. He compared that debate to retail banking, where evolving regulations “resulted in banks offering services on-line at lower costs to them and better pricing to consumers,” Jonas added.

Tesla’s plan may work, Jonas said, as “it’s just so easy to buy a Tesla” through the company’s website.

“It’s 3 clicks. That’s about as many clicks as it takes to buy catnip on Amazon,” Jonas said.

Morgan Stanley has a equal-weight rating and a $283 price target on Tesla shares.