Elon Musk’s Tesla revealed this week that the company is closing all of its retail stores and only selling cars online, despite the company claiming as recently as January that retail stores were “critical” to Tesla reaching its goals. The company is also finally releasing the $35,000 Tesla Model 3, and slashing prices on most other models at the same time.
Reuters reports that during a surprise conference call with particular members of the media last night, Tesla CEO Elon Musk revealed that the company would not be profitable in the first quarter, and noted that all global sales were transitioning to an online-only ordering system. The cut in retail stores is designed to increase demand for Tesla vehicles — which many believe has been waning — and to cut overhead costs.
Last month, Tesla stated that the company expected a “very small” profit in the first quarter of 2019, that appears to have been a false prediction. Despite recent mass layoffs at the company, Tesla appears to be taking further cost-cutting measures; many investors have voiced their concerns over further cuts to Tesla vehicle prices as they worry about the company’s ability to maintain its profit margin.
It appears that demand for Tesla vehicles dropped after a federal tax credit for buyers was cut in half. Elazar Advisors’ Chaim Siegel commented on this stating: “Tesla wants to drum up demand. There was a slowdown in the U.S. as the tax credits dropped. (There are) more tax credit hits later in the year too so they are trying to be proactive.”
In a blog on its website, Tesla claimed that moving to an online-only sales strategy would allow them to cut vehicle prices by approximately six percent. The blog states:
To achieve these prices while remaining financially sustainable, Tesla is shifting sales worldwide to online only. You can now buy a Tesla in North America via your phone in about 1 minute, and that capability will soon be extended worldwide. We are also making it much easier to try out and return a Tesla, so that a test drive prior to purchase isn’t needed. You can now return a car within 7 days or 1,000 miles for a full refund. Quite literally, you could buy a Tesla, drive several hundred miles for a weekend road trip with friends and then return it for free. With the highest consumer satisfaction score of any car on the road, we are confident you will want to keep your Tesla.
The sudden shift to an online-only sales strategy is surprising given that in June of 2017 Musk stated that he planned to increase the number of Tesla stores and that the company has “barely touched the surface” of what was possible. As recently as January of 2019, Tesla’s policy adviser Ryan Barnett announced plans to expand the company’s physical stores saying: “We think expanding our brick-and-mortar and improving access to consumers is critical to seeing any of these [electric vehicle] goals realized.” Obviously, this plan has changed.
In the fourth quarter of 2018, Tesla stated that it had opened 27 new locations with the total number of stores and service centers reaching 378.
The newly announced $35,000 Model 3 vehicle features 220 miles of range, a top speed of 130 mph and 0-60 mph acceleration of 5.6 seconds. For an extra $2,000, buyers can purchase a Model 3 with a range of 240 miles (386 km) and a top speed of 140 mph.
David Kudla, CEO of Mainstay Capital Management, which has a short position in Tesla, commented on the newly priced Model 3 stating: “The margin on the vehicle obviously is going to be very small if there’s any margin there at all.” Investors appear to have similar fears with Tesla stock dropping by 3.4 percent in after-hours trading following the announcement. Musk reportedly refused to answer a question about profit margins during the call.
New York Times auto reporter Neal Boudette claimed in a recent tweet that during the recent media restricted conference call, Elon Musk claimed that Tesla could produce 420,000 to 600,000 vehicles. The SEC recently filed to hold Musk in contempt for claiming via Twitter that the company would produce 500,000 vehicles in 2019; the company’s January 30 earnings report estimated a 2019 production level of between 360,000 to 400,000.
Just to keep things straight – @elonmusk said on call @Tesla could make up to 420 to 600K cars this year…um, last week he said "around 500K." That got him in trouble wiht the SEC. Jan 30 earnings report said production range 360-400K.
— Neal Boudette (@nealboudette) March 1, 2019
Breitbart News will continue to cover Elon Musk’s embattled car company.