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The FTC backs Tesla Motors on direct sale issue

  • Tesla Motors (TSLA -0.1%) appears to have a friend in the Federal Trade Commission on the issue of the direct sale of automobiles to buyers.
  • In a blog post on the FTC website, the agency says it's "bad policy" for consumers accustomed to using the Internet to compare and shop be forced into the dealership network.
  • The automaker has run into some roadblocks in several states where powerful dealership associations have been hard to brush aside.
Comments (41)
  • Badgold
    , contributor
    Comments (98) | Send Message
     
    It's a shame that it is regulated state by state and the FTC blogger had absolutely no say.
    24 Apr, 12:41 PM Reply Like
  • Tippydog
    , contributor
    Comments (1806) | Send Message
     
    What a non issue. Tesla is really expert at creating non obstacles that it can overcome.

     

    Here's a real obstacle: How to get investors to overlook flat to declining sales in the company's core markets.

     

    Netflix had a great quarter. Stock is a little better than flat.
    Facebook had a phenomenal quarter. Stock is flat.
    Service Now had a great quarter. Stock is down.

     

    Those are the successful momentum names. They overvalued but they are delivering. And yet the stocks are yawning or declining.

     

    What will Tesla do when it shows up with its flat sequential quarter, guides to flat or slightly up, and shows a reservations balance which is flat? Reiterates that the year will be back end loaded, if they make it. All while remaining unprofitable.

     

    Do you remember those questions on the SAT, "which one of the following is least like the others?". Those were kind of fun questions. They tested for pattern recognition. Comparison of disparate items.

     

    Which company on the Momentum list is least like the others?

     

    Its this one. This one's different. The others are growing in their core market while they ALSO expand into new markets. This is the one that isn't. This is the one where the analysts are cutting earnings estimates, not increasing them every quarter. This is the one where the current year is back end loaded.

     

    They are all overvalued. They are all being affected by the shift in fashion from momentum to value among institutional investors. They all have investors who are now embarrassed to show they own them. Thats the backdrop, and that could turn back and forth of course.

     

    But on the fundamentals, this one's different.
    The top candidate for ejection from the momentum club. Thats what we have here. Tesla siting on the ejector seat from Club MO.
    24 Apr, 12:43 PM Reply Like
  • haaggus
    , contributor
    Comments (62) | Send Message
     
    Tesla is a more substantial company than Facebook and Netflix. Obviously all of their stock prices make no sense and will probably be cut in half, but sites like PopcornTime proved how easy it is to set up a site exactly like Netflix only better. Also, Facebook could be abandoned overnight. I would bet on TSLA to be around longer than FB and NFLX but that's just me. I'm an Elon Musk fanboy.
    24 Apr, 01:03 PM Reply Like
  • 123man
    , contributor
    Comments (1032) | Send Message
     
    If it is a non-issue then why all the hoopla from all the distributors of FUD on SA's site regarding how Tesla could possibly survive - Musk is so far ahead in his thinking that the FUD contributors are always 4 or 5 moves behind - "different" is EXACTLY what Tesla the car, the company and the CEO are - for anyone to not acknowledge those facts is beyond reason -
    24 Apr, 01:37 PM Reply Like
  • MTriantafelow
    , contributor
    Comments (35) | Send Message
     
    Obviously sales are down in the U.S. because production has been diverted to the new markets that Tesla is expanding into right now: Europe last quarter and China this quarter. Production is growing slower than they are expanding geographically, so simple arithmetic tells you there aren't as many cars available for the U.S.

     

    I think your point is that demand is slowing and Tesla is compensating by moving into additional markets. I suppose this is possible, but not very sensible.

     

    Nearly all the demand that exists today for Model S is generated by word of mouth. Last year Elon said that they were going to be slowing the expansion of their store fleet because they were unable to meet the demand being generated by those stores. So, if demand is slowing, why hasn't Tesla resumed the rapid construction of new stores?

     

    At the very least you would think we'd be seeing some traditional marketing out of the company if demand was soft. I'll start wondering about U.S. demand when I see the first Tesla commercial on TV.
    24 Apr, 01:47 PM Reply Like
  • surferbroadband
    , contributor
    Comments (953) | Send Message
     
    " How to get investors to overlook flat to declining sales in the company's core markets."

     

    I assume you are referring to the US market. But guess what, the US market is not the only market out there. China, Japan, India, Europe, and in a few years Africa. Take a look at growth in Nigeria. Want to get in an expanding market, Nigeria has a growing population with money. A few months ago there was that terrorist attack in the upscale mall in Kenya. President Obama's dad was from Kenya.

     

    But that doesn't matter to the shorts out there. Take some facts that are out of context and present them as showing a trend.

     

    My point. The US market is not the dominate market in selling a product or service that is used worldwide.
    24 Apr, 01:49 PM Reply Like
  • Dave_M
    , contributor
    Comments (2622) | Send Message
     
    Tippydog - "What will Tesla do when it shows up with its flat sequential quarter, guides to flat or slightly up, and shows a reservations balance which is flat?"

     

    Tesla has already guided a 60% increase in units produced and sold in 2014 over 2013. They have traditionally beat their guidance. Yet you would have people believe that they will have flat or slightly increasing sales. Some of the naysayers are even saying declining sales. I think the naysayers are dreaming and wishing to support their short position.

     

    FYI - $400M -> $2B -> $3.2B in sales is not flat to slightly up. When you can't recognize a trend, you tend to lose money.
    24 Apr, 02:34 PM Reply Like
  • Tippydog
    , contributor
    Comments (1806) | Send Message
     
    Surfer,

     

    You are right. I overlooked the Nigeria market.
    24 Apr, 02:37 PM Reply Like
  • Curt Renz
    , contributor
    Comments (155) | Send Message
     
    @Tippydog

     

    In the US the Model S is essentially selling on word of mouth that begins in California. Once production ramps up sufficiently, the company will advertise. Then you can forget any talk about orders plateauing. Meanwhile, delayed deliveries are spread worldwide.

     

    I retired as the host of a financial TV news program in 2003. Until late January of 2013 I had never heard of Tesla Motors, the Model S or Elon Musk. When provided with a tip by a former guest on my program, I did thorough research. I bought a significant number of shares at less than $38 each. The stock has generally been on a tear ever since, although not without hiccups. For the larger corrections I had written covered calls, resulting in cash I was able to keep.

     

    Now it's over a year since I learned of Tesla Motors, and still the majority of people that I run into here in Chicagoland are either unaware or vaguely aware of the company and its cars. Sure, those who've been following financial news in recent months have heard of it, but most people do not follow the financial news. An intelligent electrical contractor did work in my home last week. I asked him if he were aware of Tesla. "Sure", he replied, "Nikola Tesla was a great electrical engineer." But the contractor knew nothing about Tesla Motors or the Model S.

     

    Once advertising begins, look for a huge boost in orders for Tesla cars in all markets. That would include the SUV Model X for which many have been waiting to begin arriving later this year in preference to the Model S sedan.

     

    Tesla Motors is disrupting established oil and automobile industries as it leads an electric car revolution that its competitors are reluctant to follow. Don't be surprised if in a few years it becomes the world's largest and most profitable car manufacturer and battery producer. Investors today are paying for only a small part of that potential, and wisely are not evaluating its business by the metrics meant for ICE-age automakers.
    24 Apr, 02:52 PM Reply Like
  • Tippydog
    , contributor
    Comments (1806) | Send Message
     
    Curt,

     

    Congratulations on your great trade. I have been selling calls along with you and its worked for me too. The call premiums have been great, haven't they?

     

    My advice for you would be to keep selling those calls, collecting the ample premium paid for this hyped up and over-loved stock. But I would sell the stock you own, and just keep the naked call position. I recommend you do this before the market gets a first view of the backlog going into Q-2, and its first actual visibility of the minimal orders the company has achieved in China.
    24 Apr, 03:08 PM Reply Like
  • Tippydog
    , contributor
    Comments (1806) | Send Message
     
    MTriantafelow,

     

    If declining sales in the U.S were due to diversion of production elsewhere, then we would be seeing expansion of order lead times. We are instead seeing shortening lead times.

     

    You say that if demand were soft, Tesla would be opening more stores. Indeed they have. Stores in California almost tripled during 2013. Yet
    Here, according to CNCDA, is how Tesla Model S registrations in California tracked during 2013:

     

    •Q1......2,406
    •Q2......2,308
    •Q3......1,823
    •Q4......1,793 Less

     

    A decline, every single quarter, all while sales locations and Superchargers expanded. Then we saw numerous "pull ins" at the end of this quarter.

     

    New marketing. Well, we have a new leasing program announced a few weeks ago. Thats a promotion.

     

    The argument that sales in the U.S. are flat because of production allocation is Tesla religion. It just happens to be false.
    24 Apr, 03:20 PM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (3238) | Send Message
     
    A quick look at Tesla's job openings page is very revealing. It shows that Tesla is worried about having enough people to deliver Teslas and answer new owner's questions about how the car works, especially in Europe, not sales personnel in the stores. Your concern is touching, but greatly misplaced.
    24 Apr, 04:43 PM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (3238) | Send Message
     
    Oh ye of little faith! Curt obviously doesn't need any of your advice.
    24 Apr, 04:49 PM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (3238) | Send Message
     
    When a company does no advertising whatsoever, and deliberately takes steps to moderate demand so that it can continue to expand in new markets with its limited supply, it's hard to believe in arguments put forth by shorts like you that the sky is falling and the company will surely die on the vine in the very next quarter. Tesla can keep its factory humming at full capacity mostly on word of mouth for the foreseeable future, and is actively working to expand capacity. That's all an investor really needs to know. This quarter's sales figures should beat guidance by 10%, same as next quarter. In the second half of the year a new assembly line at Fremont should come online and the company should guide for substantially higher numbers in the last two quarters of the year.
    24 Apr, 04:58 PM Reply Like
  • Tippydog
    , contributor
    Comments (1806) | Send Message
     
    David,

     

    I can understand they may indeed need to beef up their staff of people who can deliver the car, and discuss how the new car works. In fact, I am sure it is one tricky logistical challenge and each quarter the need for enough such people becomes more dire. Thats's because we see that each quarter a higher percentage of the deliveries is happening on the very last few days of the quarter. We have all read about the scramble for pull ins, and the scamble to make those deliveries. Moving people from one location to another. A mad scramble to get it done. No doubt putting the customers through all kind of excitement to accommodate the company and its objectives.

     

    This kind of scramble reflects very poor linearity. Poor linearity shows a company straining to make its numbers each quarter. Straining due to unpredictable demand as well as onerous and very complex operations. Indeed, straining to make flat numbers, as we see.

     

    Those kind of "exciting" quarter ends can cause "excitement" in the company's financial results. Companies with this kind of pattern eventually miss.

     

    And then when they miss, they usually come out with a story about how the miss is not due to lack of orders. In fact it was due to so much demand the company couldn't get it done due to a "one time" stumble. And yet somehow, the very next quarter never seems to show the "extra" volume that spilled over from the prior quarter.

     

    Companies frequently show operational strain before the adverse surprise. When a CEO on his quarterly call says-- as this one said in February-- we could have a better quarter, but we don't want to "play games" (so we are guiding for a decline) well that kind of discussion is a leading indicator of the company deciding at some point that maybe they should play some of those games.
    24 Apr, 07:05 PM Reply Like
  • Tippydog
    , contributor
    Comments (1806) | Send Message
     
    David,

     

    No one says the sky is falling. Demand is flattening in the core markets, thats all. Thats what we see, not sky falling. The sky doesn't actually fall. But companies do have flattening growth, and there are signs of it happening that can be seen from the outside.

     

    If demand was so strong in the U.S and globally, they wouldn't have had to shove 1500 units into Norway at the end of the quarter to make the numbers.

     

    Those Norway shipments in the last 2 weeks of March betray the truth of what is going on.
    24 Apr, 07:12 PM Reply Like
  • eager1
    , contributor
    Comments (111) | Send Message
     
    Apple Computer slightly positive news and exploded to the upside - I guess you missed the news, TSLA is a long story - the conversion from Gas engines to electric, That story is just beginning and there is a lot of growth ahead.
    24 Apr, 12:51 PM Reply Like
  • Tippydog
    , contributor
    Comments (1806) | Send Message
     
    eager.

     

    Yes. Apple showed great stuff. And you can buy it for 10 times earnings.

     

    A great value. Apply those lessons to Tesla.

     

    Here is the main lesson: You do not need to pay a stupid and embarrassing price to buy stock in a company that delivers real profits in a real business that is tapped into the major trends.

     

    There are reasonable values for great companies. Those values matter. You must pay fair prices for good businesses. And you can do so, if you are patient.
    24 Apr, 01:01 PM Reply Like
  • DanoX
    , contributor
    Comments (2584) | Send Message
     
    Government always does what corporate wants in the end, look at the FCC.
    24 Apr, 01:00 PM Reply Like
  • scott trader
    , contributor
    Comments (4522) | Send Message
     
    Pay off your federal loans early and get a reward...pretty simple..
    24 Apr, 01:02 PM Reply Like
  • hughesrd
    , contributor
    Comments (115) | Send Message
     
    As an ex-bureaucrat for the Feds, if I understand you correctly, this is a pretty simple view of bureaucracies. In my experience the left hand never knows what the other is doing (to coin a phrase). A simple example of the IRS (which I don't blame because Congress has been cutting their budget) illustrates the point. Because of my mistake, I incurred a fine of over $900 which I paid as soon as my account figured out what I owed. Within three months it was returned with a credit for interest earned! Took a year for them to figure it out after we provided an explanation and paid the fine again (but kept the $5 interest as our penalty for them).
    24 Apr, 01:57 PM Reply Like
  • FLroller
    , contributor
    Comments (11) | Send Message
     
    Hmmm....I wonder if this could be prelude to a possible federal voiding of state laws banning direct auto sales via the internet.
    24 Apr, 01:02 PM Reply Like
  • 523546
    , contributor
    Comments (45) | Send Message
     
    Good possibility considering Tesla only makes electric cars and conforms with national energy policy.
    24 Apr, 02:02 PM Reply Like
  • Cassina Tarsia
    , contributor
    Comments (641) | Send Message
     
    ... Good sign, anyway!
    24 Apr, 01:29 PM Reply Like
  • surferbroadband
    , contributor
    Comments (953) | Send Message
     
    It is over for the car dealers. The feds are going to prevent states from banning direct sales over the internet.
    24 Apr, 01:41 PM Reply Like
  • shakazoid
    , contributor
    Comments (146) | Send Message
     
    Am not a fan of (TSLA) current valuation but I do believe all the states & dealers preventing direct sale of Tesla cars to consumers , should be sued & investigated for "price fixing".
    24 Apr, 01:43 PM Reply Like
  • FLroller
    , contributor
    Comments (11) | Send Message
     
    Hmmmm......I wonder if this could be prelude to a Federal voiding of state laws that ban direct auto sales via the internet.
    24 Apr, 02:02 PM Reply Like
  • ZZZaapp
    , contributor
    Comments (5) | Send Message
     
    And perhaps the traditional dealership should be barred from selling over the internet as almost all of them do now. Then see how fast the state legislative barriers are pulled down.
    24 Apr, 02:02 PM Reply Like
  • Curt Renz
    , contributor
    Comments (155) | Send Message
     
    I wrote the FTC about this issue a month ago. An FTC lawyer responded, "Thank you for your email. It has been forwarded to appropriate Commission staff members for review." Apparently I was taken seriously. This may soon lead to a White House response to the Tesla related petition. It may even result in the FTC or Justice Department bringing the case to the federal courts.
    24 Apr, 02:59 PM Reply Like
  • PVYMCH
    , contributor
    Comments (42) | Send Message
     
    I am 60 years old & I must have purchased at least 16 new cars in my lifetime.
    My last new car purchase was like a quad ROOT CANAL.
    I will buy a Tesla only because I don't have to go through another "Dealer Experience"
    ENOUGH SAID
    Thanks !!!! Mr.Musk
    24 Apr, 03:03 PM Reply Like
  • aaronw2
    , contributor
    Comments (182) | Send Message
     
    To get an idea why the car dealership experience is often so horrible this gives a good insight as to why that is. The entire system is rigged against the consumer.

     

    http://bit.ly/1dsqJzg
    24 Apr, 04:58 PM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (3238) | Send Message
     
    It doesn't have to be as bad as a quad root canal. If you want to buy a new (or even a nice used) car but it's not a Tesla, go to your credit union or AAA and ask about their car buyer program. They can usually get you into the car of your choice with minimal involvement and pain at a local dealer. Your credit union can also usually provide better financing than the dealer or a bank.
    24 Apr, 05:06 PM Reply Like
  • Dave_M
    , contributor
    Comments (2622) | Send Message
     
    Honda has a new commercial "Secret Training Facility" where the salespeople are tested on how quickly they can respond to "simulated cardboard" customer questions and redirect the conversation back to the popular features. In the commercial, they are telling the consumer that they are practicing so they can beat you at their game.

     

    Very disturbing.
    http://bit.ly/1fbC5bI
    24 Apr, 05:20 PM Reply Like
  • JackB125
    , contributor
    Comments (241) | Send Message
     
    @aaronw2,

     

    Very interesting radio article. Thanks for posting the link. It really shows how the current independent dealership model is adversarial at ALL levels. Consumers need more sales choices, manufacturers need more distribution/sales choices and working for a dealership as a salesperson sounds like a terrible job.

     

    The state franchise laws have frozen the new car sales model for decades and now this system cries out for change from nearly all involved. Insulating this model from market forces by state fiat has served only one very small special interest group -- the dealership owners.
    24 Apr, 07:07 PM Reply Like
  • J Michael McKay
    , contributor
    Comments (28) | Send Message
     
    I canceled a 2014 Stingray. I ordered it, waited 5 months, then realized "Musk is a movement." The thrill is gone for dealing with dealerships.
    24 Apr, 09:00 PM Reply Like
  • MaiTesla
    , contributor
    Comments (53) | Send Message
     
    I work in Sunnyvale, CA where Tesla just took over a former Acura dealership. I drive by everyday and what I see in the parking lot are several Model S, that I guess, are used as loaner. That means Tesla put on a side loaners to "service" their existing customers rather than be short of loaner (and dissatisfy existing customers) in the name of making more sales. Registrations in CA dropped quarter after quarter in 2013 but that has a meaning only if production is able to satisfy demand. That's not the case. Other states are also buying, i.e. Texas. You have to starve a location (California) to shift deliveries to somewhere else without completely shutting down the flow but just reduce it.
    Tesla is not going to be profitable in the short or mid term. It takes a lot of money to build a network of superchargers and service centers on 3 continents. Money sleeping in a bank account is not productive. Better use that money to expand and give potential customers a reason to buy the car.
    24 Apr, 07:08 PM Reply Like
  • I need a bailout
    , contributor
    Comments (1228) | Send Message
     
    The 50,000+ US dealerships offer lots of choices because 1.4 million cars are sold every month in the USA alone.

     

    Under U.S. federal law, all new cars must carry a sticker showing the offering price and summarizing the vehicle's features.

     

    Tesla is no exception.

     

    Tesla does have a lot of overhead that the other car manufacturers offload to the dealer network. When times get tough, not having all the overhead is a good thing for car manufacturers.
    25 Apr, 10:33 AM Reply Like
  • Charles_Cyrill
    , contributor
    Comment (1) | Send Message
     
    NADA to FTC Staff Bloggers: Let the States Decide How Consumers Shop for New Cars -- For consumers buying a new car today, the fierce competition between local dealers in a given market drives down prices both in and across brands – while if a factory owned all of its stores it could set prices and buyers would lose virtually all bargaining power. And buying a car isn’t like buying a pair of shoes online. Cars require licensing to operate, insurance and financing to take home, and contain hazardous materials, so states are fully within their rights to protect consumers by standardizing the way cars are sold.
    25 Apr, 04:39 PM Reply Like
  • Dave_M
    , contributor
    Comments (2622) | Send Message
     
    Which dealership franchise do you own?
    25 Apr, 10:43 PM Reply Like
  • kills hot
    , contributor
    Comments (6) | Send Message
     
    C_Cyrill

     

    Here is a novel idea - let the consumer decide if they want to buy a Tesla the way Musk wants to sell the car. If they don't like his method, they can buy an ICE car. Why do we need the state or the federal government involved in a decision on the way a manufacturer wants to sell their product and subsequently if the consumer accepts that approach. Gosh, I think this is called free market. This country is founded on that principle, not a regulated socialist society.

     

    Tesla doesn't want dealers and dealers have no right to force them to sell in that method. And the government should stay out of it.
    27 Apr, 10:48 PM Reply Like
  • I need a bailout
    , contributor
    Comments (1228) | Send Message
     
    @kills hot

     

    The USA is drowning in laws that cost a fortune to maintain. There will be 40,000 new laws so far in 2014 alone.

     

    http://bit.ly/1k0KYku

     

    The government increasingly wants to protect the consumer. That probably accounts for half the laws. By your definition the USA is a regulated socialist society?

     

    You can thank all those lawyers that got elected to congress and the senate?
    27 Apr, 11:03 PM Reply Like
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