N.J. drives Tesla out of town, not off a cliff
With continued margin expansion and higher production, shares remain a strong buy at any price below $240.
It's true for every analyst -- every once in a while you will come across a company that you've beaten up, only to find yourself defending them later. That's where I've arrived with high-end electric vehicle company Tesla (TSLA).
Ever since the New Jersey Vehicle Commission voted Tuesday to ban Tesla from direct-selling of its vehicles, investors feared the worst.
After the stock closed down roughly 2 percent Tuesday to $232.41, the shares rebounded Wednesday to close at $241.49, up 3 percent since the ruling was announced. Investors were feeling better knowing that although Tesla may have driven out of New Jersey, the stock wasn't going to fall off a cliff. But it's not time to get complacent.
The ban takes effect on April 1. It's at that point that Tesla must stop all direct-selling within the state. Given that New Jersey is home to some of the most luxury-hungry auto markets, Tesla is certain to take a hit. But it won't be anything other than a minor inconvenience.
I don't want to downplay this impact. But these cars practically sell themselves. That's what CEO Elon Musk understands.
How many local stores did Amazon (AMZN) have before it grew to one of the largest retailers in the country? I say this in jest, of course. But the logic still stands.
Elon Musk does not need recycled salespeople to explain to customers the nuances of a Model S. Tesla markets to sophisticated shoppers. And don't think for a moment that these shoppers won't find some other means to get into the driver's seat of their chosen model.
There's a reason why the automaker is increasing production. Even more impressive is that profits are increasing. To those who are unable to explain why the stock is rising -- these are two excellent reasons. Sure, there's been some irrational exuberance at times. But it's tough not to want to latch your hitch to Elon Musk, whom many revere as the next Steve Jobs.
For that matter, where was Apple (AAPL) ten years ago? (Here's a hint: the shares have gone up 3,750% in that time frame.)
Likewise, expensive or not, investors are buying this stock on the assumption that Tesla will continue to grow its revenue. From my vantage point, the 10-year revenue ramp looks solid, given the company's recent predictions and plant constructions.
Management has set a 3-year target to become mainstream. This means that Ford (F) and General Motors (GM) vehicles won't be the only ones you see in your neighbor's driveway in middle class America. The New Jersey Commission understands this trajectory.
The members claimed they voted following months of discussions between Tesla and members of Gov. Chris Christie's administration. According to Tesla, the company was under the impression that the commission was seeking approval from the New Jersey Coalition of Automotive Retailers.
As it stands, Tesla representatives believe Gov. Christie's administration was disingenuous in its intent. But it's Tesla's word vs. New Jersey. Investors may never know the real truth of what led to this ruling. What we do know is that capitalism in its truest form is and will remain on the side of Tesla. And it's encouraging that investors haven't overreacted.
For now, the shares may experience some pressure until investors get a better sense of how Tesla will adjust to this ruling. But with continued margin expansion and higher production, Tesla shares remain a strong buy at any price under $240.
At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
More from TheStreet
- Worry about China, not Ukraine
- World Wrestling Entertainment hits all-time, but not in merger talks with AMC
- Texas Instruments flashes cash, analysts raise targets
""""The members claimed they voted following months of discussions between Tesla and members of Gov. Chris Christie's administration. """
AKA - the local jersey mob said no........Tesla likely has a strong corporate ethics policy in place and wasn't paying off anyone.
Pure and simple illegal restraint of free trade. If Eric Holder and the DOJ want to do something really good for everyone instead of defending immoral behavior then why not go after the American Auto Dealers in NJ and TX for a start. Of course Obama just wants to enact and enforce the laws that he is in favor of while supporting illegal behavior of those that help elect him. And he has the balls to call Putin out for illegal acts, what a hypocrite.
What logic? Where was Amazon banned? Move along folks, nothing to see here.
Copyright © 2014 Microsoft. All rights reserved.
The S&P 500 manages to keep a deathgrip on 2,000, but key areas of the market are already buckling under pressure.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.