Tesla (TSLA) Gains Approval to Open Stores in Richmond

Tesla Motors, Inc. TSLA has received approval from the Virginia Department of Motor Vehicles commissioner to operate through its own stores in Richmond, VA. This is likely to help the electric automaker expand its business.

Some of the states have dealer-franchise laws, which put a check on competition among independent retailers and stores operated by the manufacturers. The laws in Virginia also prevent auto manufactures from selling vehicles directly in the state. Considering the absence of any independent dealer in Virginia, the Department of Motor Vehicles commissioner granted the approval to Tesla.

Tesla is rapidly forging ahead with its business expansion plans. The approval will add new sales locations for the company.

Tesla has also received approval to sell vehicles directly in some states including California and Indiana. However, the automaker faces opposition to its direct-selling model in some U.S. states such as Texas, Arizona and Michigan. This restricts Tesla’s ability to sell cars as it relies solely on direct sales. The state of Michigan has not only imposed a ban of direct car sales but has also made franchised dealers compulsory in Oct 2014. This effectively bars Tesla from opening galleries to display its cars as well. Moreover, an amendment to a bill passed by the Missouri Senate prohibits direct sale by automakers although the Missouri legislature concluded its session without voting on the bill, thus allowing Tesla to continue selling its cars in the state for the time being.

In the last one year, share price of Tesla has fallen 18.36% while the Zacks-categorized Auto-Tires-Truck industry saw a 5.30% decrease.

Since the beginning of the year, Tesla has been facing production-related issues and has failed to meet delivery targets in the first two quarters. This combined with losses had a negative impact on its share price. Concerns related to the acquisition of SolarCity, which has high debts and cash outflow, also weighed on the share price.

Meanwhile, SolarCity is shifting toward cash sales and reducing dependence on capital markets. This is expected to alleviate investors’ concerns and shift focus to Tesla’s growth plans such as the Gigafactory and Model 3 development.

Zacks Rank & Key Picks

Tesla currently carries a Zacks Rank #3 (Hold).

Better-ranked companies in the auto space include Allison Transmission Holdings, Inc. ALSN, America's Car-Mart Inc. CRMT and Rush Enterprises, Inc. RUSHA.

Both Allison Transmission and America's Car-Mart sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Allison Transmission has a long-term growth rate of 11%.         

America's Car-Mart has a long-term growth rate of 45.50%.

Rush Enterprises, carrying a Zacks Rank #2 (Buy), has a long-term expected growth rate of 15%.

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