Just last month, Tesla announced that it would start closing most of its physical stores and will be switching all of its sales through online transactions. However, CEO Elon Musk announced Sunday that it would be reversing that initial announcement.
Initially, Musk wanted to close most of its stores to lessen staff and cut costs on operating its many physical stores to cater to the lower prices pegged for the Tesla Model 3.
According to a blog post by Tesla, they will reverse the initial decision and keep about half of its stores open. The blog said, “over the past two weeks we have been closely evaluating every single Tesla retail location, and we have decided to keep significantly more stores open than previously announced as we continue to evaluate them over the course of several months.”
Moreover, the post elaborated that Tesla will close some of its stores due to underperformance and low visibility issues, which they would have closed even without the need to cut costs. The stores, however, that would remain open, will have a lesser crew.
It is essentially a waste of money to keep stores open when they perform poorly. It’s paying for operational costs only to put it on display.
A report says that some of its stores don’t pass the Sherlock Holmes test, “Meaning, most of these stores are in such difficult or obscure locations, only Sherlock Holmes could find them!”
Tesla currently has 378 stores and service centers worldwide. The total number of stores i the US is still to be disclosed as precisely how many will close. As of the moment, around 20% of their physical stores are under observation and will determine if they will be closed or stayed open based on performance.
Still, the prices for the current $35,000 Tesla Model 3 will remain the same, but a 3% average increase on the expensive variants of Model 3, Model S, and Model X can be expected globally, as a result from keeping its physical stores open.
With regards to their selling platform, all sales will still be accomplished online. Musk still offers the convenience of doing transactions with the convenience of your phone.
Tesla, in return, offers future Tesla owners test drives of its vehicles on the customer’s chosen physical store. Moreover, “the generous return policy of 1000 miles or 7 days, whichever comes first, should alleviate the need for most test drives,” the post elaborated.
Additionally, customers still have until March 18 to purchase their vehicles at their current prices.
Critics initially doubted Tesla’s move, the moment they announced it. Analysts argue that by providing a cheaper alternative would affect the company’s gross margins.
They argue that, by giving its consumers a cheaper alternative to acquiring one of their products, it is a logical reason to opt for the cheaper rather than choosing the expensive end. The cheaper Model 3 also pose a problem because most of the company’s revenue come from margins gained from higher priced vehicles the company offers.
They note that Tesla will see better results if it continues to sell its vehicles to a niche consumer base at higher prices.
The $35,000 Tesla Model 3 has already caused the company to cut most of its expenditure on staffing and physical locations, to cater that much lower sell-out price.
At the moment, Tesla needs to earn more from its expensive models to continue production. However, Musk seems keen on introducing its electric vehicles towards the masses.
If Tesla decides to continue pushing for mass production, “Tesla’s biggest challenge going forward will be meeting production volumes and demand while maintaining timely service for a rapidly-expanding customer fleet. If Tesla can do this it will have successfully transitioned from a boutique automaker with a niche audience to mainstream brand serving mainstream consumers,” says Karl Brauer, executive publisher at Kelley Blue Book and Autotrader.
The goal, since its conception, was for Tesla to produce the electric vehicle deemed to address pollution and cut costs on conventional fossil fuel. Musk wanted electric vehicles accessible for the masses.
It is not entirely assured that Musk would take the mass production route, but the essential first step has been made with the $35,000 Model 3, another step closer for people to purchase an electric.