Tesla on Showroom Closures: Never Mind
Tesla decided not to close most of its worldwide showrooms, as it announced in February 2019. Instead, it will keep more open, while raising prices for most of its electric vehicles. While the Palo Alto, CA automaker is continuing its move toward online-only sales, it isn’t closing as many brick-and-mortar stores as originally thought. Specifically, the company indicated it would close approximately half of the stores it originally intended to.
In a recent filing, Tesla indicated it closed 10% of its stores, but a few will remain open. An additional 20% are being evaluated, with some potentially remaining open. Tesla has 378 stores and service centers worldwide; approximately 100 are in the U.S. The remaining stores might have fewer workers, but will have vehicles available for test drives. Also on hand would be a small inventory for customers who want to purchase immediately.
However, as more stores remain open, costs would have to be cut elsewhere. “Tesla will need to raise vehicle prices by about 3%, on average, worldwide,” the company indicated in its filing. Though half as many stores would be closed, “the cost savings are therefore only about half,” it said.
When Elon Musk announced on Feb. 28 that Tesla would be shifting totally to online sales, it was to cut costs in an effort to sell the mass-market version of the Model 3 sedan for $35,000. Before that late February announcement, the least-expensive Model 3 started at $42,900. The company indicated that shifting to online sales would allow it to lower all vehicle prices by 6%.
Michael Ramsey with Gartner wasn’t having any of it. He called Tesla’s walk-back startling, asking the Wall Street Journal: “How else can you view it except to see it as a remarkable example of lack of foresight or planning?” He added that, it almost seemed as though the decision was announced without any analysis as to the consequences.
Ramsey did say that the move to close 10% of the stores and evaluate others is the right thing to do, and that most retail companies do that all the time.
Photo Credit: Trong Nguyen for Shutterstock
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