Tesla to close stores to reduce costs for Model 3
Tesla will only sell its electric cars online as it accelerates its cost-cutting so it can realise its long-running goal of selling a mass-market sedan for 35,000 dollars (£26,000)
The change announced on Thursday will allow the Silicon Valley carmaker to begin selling its Model 3 for 35,000 US dollars (£26,335) — a price point that Tesla chief executive Elon Musk has been striving to reach in order to appeal to more consumers and generate the sales the company needs to survive.
The cheapest Model 3 that could be ordered before Thursday started at 42,900 dollars (£32,350).
To save money, Tesla will close many of its stores, but leave some open as galleries or “information centres” in high-traffic areas.
Mr Musk declined to specify how many stores will be closed or how many employees will be laid off. The company has 378 stores and service locations worldwide.
“This is the only way to achieve the savings for this car and be financially sustainable,” Mr Musk told reporters during a conference call.
“It is excruciatingly difficult to make this car for 35,000 dollars and be financially sustainable.”
The online sales shift will enable Tesla to lower all vehicle prices by 6%, on average, including its higher-end Model S and Model X.
All other major automakers rely on vast dealer networks, but Mr Musk co-founded Tesla in 2003 in an effort to shake up the industry, starting with a focus entirely on a fleet of cars powered by electricity instead of gasoline.
Although he said going online-only was a difficult decision, Mr Musk believes it is the right one.
“It’s 2019,” he said. “People want to buy things online.”
Although he said he did not know for certain, Mr Musk predicted there was enough pent-up demand to sell about 500,000 Model 3s annually at the starting price of 35,000 dollars.
But buyers will have to wait far longer than they do when shopping on Amazon.
A US consumer who places an order for the Model 3 at its new lower price now will likely get it by the end of June before a tax credit for electric vehicles is scheduled to be reduced, Mr Musk said.
The store closures will come on top of a decision to cut 3,150 jobs, or about 7% of Tesla’s workforce, announced earlier this year.
Despite the austerity measures, Mr Musk told reporters Tesla will lose money in the current quarter ending in March, backpedalling on a statement he made last October when he pledged the company would remain profitable from that point on.
But Mr Musk said it was “likely” Tesla will bounce back with a profit during the April-June period.
Tesla’s stock fell 3% in extended trading after the news came out.
The Palo Alto, California, company is slashing costs just a few months after paying half of a 40 million dollar settlement of a case that the Securities and Exchange Commission (SEC) filed against Mr Musk last September after he tweeted that he had lined up financing for a potential buyout for the company.
The SEC alleged Mr Musk misled investors after concluding he did not have the money to pull off the deal.
The SEC has asked a federal judge to hold Mr Musk in contempt after he posted another tweet about key Tesla information without getting company approval as required in the settlement of its previous case.
Mr Musk declined to take questions about the SEC’s attempt to hold him in contempt.