After a chaotic week of decisions on the future of their retail sales model, Tesla seems to have come to a final decision about their Tesla stores. The company just posted an update to their blog stating that they will seek a much less disruptive version of their change in strategy, instead closing about 10-30% of locations.
As a result, the price drops associated with these store closures will be partially reversed. Vehicle prices across the line will increase by a few percent, except for the newly-released $35,000 Model 3, which will remain at that same price. These price increases will happen on March 18th, so current prices are valid for anyone who orders in the next week.
Tesla is not changing their new 7 day/1,000 mile (whichever comes first) return policy, and will continue to sell cars online. Stores will merely act as a physical portal to the online sales platform, where employees will help customers to make their orders on Tesla’s website. This is how sales have always worked at Tesla in the past, so this is a continuation of business as usual.
The company will still do test drives in physical locations for potential customers on request, and will carry some vehicles in inventory for customers who want to drive away in a car instead of waiting for an online order to be built.
This announcement is the latest in a dizzying string of stories recently about Tesla’s changing sales strategy. In the last week and a half, Tesla announced that they would close all stores, then slashed employee compensation seemingly in an attempt to get employees to quit without severance, then started closing stores almost immediately after the announcement (including relocating staff within regions), and then seemed to walk back the changes as they froze closures and layoffs at least until the end of the month.
Along with this new announcement, Tesla also stated that they will be re-opening some recently-closed stores, but with smaller staffs.
Were I a religious man, this is where I would exclaim “thank the Lord.” The craziness seems to have subsided, at least for the moment. Take a breath, Jamie. Ahhhhh….
This last week and a half has been a story of one mind-boggling decision after another, and those of us who have followed Tesla for a long time and generally approved of their strategy for sales, retail, engineering, etc., have struggled to find the reason in it. A lot of possible explanations have been bandied about, but at the end of the day the whole process seemed quite irrational.
Tesla may be different from other manufacturers in many ways, but a car is the second most expensive purchase most people will ever make, and people want to see and drive cars, and talk to a real person, before putting tens (or hundreds) of thousands of dollars on the line. The 7 day return policy is nice, but nobody wants to arrange a $100,000 loan just to test drive a P100D.
While Tesla stated that most sales occur online, the only stat it gave was for the Model 3, which was in its first 6 months of significant sales and was affected by many outside factors (tax credit expiry, lack of availability of test drive cars, etc.). They didn’t mention the stats for more mature vehicle lines, the S and X, which are also more expensive and thus more likely that customers would want to have a more personal experience in buying the car.
And Tesla’s statistics also ignored the number of people who had been to a store to either have questions answered or who had been introduced to the brand by a store. Even if a customer orders online in the end, their buying decision may well have been influenced by Tesla’s retail presence. According to a poll we ran, over half of our readers had been to a Tesla store as part of their buying experience.
Not to mention that branding does have value, and Tesla having a physical presence in places where people spend time is important to increase mindshare.
And finally, this is the right thing to do for Tesla’s sales employees, who have gone through quarter after quarter of huge sales pushes to try to get Teslas out the door, to minimize inventory, and who have managed to push the company to profitability for the last two quarters in a row, and get the Model 3 in the hands of as many buyers as possible before the tax credit started to expire. No word on whether the changes in compensation structure will be rolled back, though.
So in the end, I think this is the right decision. While I think Tesla should still be hiring, rather than firing, in sales and service, it makes sense for a company to occasionally re-evaluate underperforming locations.
What wasn’t the right decision was going through a week of chaos to get to this point. Had Tesla simply sat on the decision for a week or so, then this all could have been avoided and the company would look a lot more competent for it. We heard that traffic in some stores dropped by a quarter the day after the announcement was made about going online-only, and that doesn’t help Tesla at all. If you’re going to leave stores open, you shouldn’t tell customers that they’re closed.
But hopefully this will be just a temporary slip-up, and Tesla will steady the ship a little bit from here on out.
Read Tesla’s full announcement below, then tell us what you think of it in the comments:
Update on Tesla Stores and Pricing
The Tesla Team March 10, 2019
Last month, we announced that we would be winding down many of our stores and moving to online-only sales in order to pass the savings along to our customers.
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. When we recently closed 10% of sales locations, we selected stores that didn’t invite the natural foot traffic our stores have always been designed for. These are stores that we would have closed anyway, even if in-store sales made up our entire sales model. A few stores in high visibility locations that were closed due to low throughput will be reopened, but with a smaller Tesla crew. In addition, there are another 20% of locations that are under review, and depending on their effectiveness over the next few months, some will be closed and some will remain open.
As a result of keeping significantly more stores open, Tesla will need to raise vehicle prices by about 3% on average worldwide. In other words, we will only close about half as many stores, but the cost savings are therefore only about half.
Potential Tesla owners will have a week to place their order before prices rise, so current prices are valid until March 18th. There will be no price increase to the $35,000 Model 3. The price increases will only apply to the more expensive variants of Model 3, as well as Model S and X.
To be clear, all sales worldwide will still be done online, in that potential Tesla owners coming in to stores will simply be shown how to order a Tesla on their phone in a few minutes. And the generous return policy of 1000 miles or 7 days, whichever comes first, should alleviate the need for most test drives. However, cars will still be available for test drives at stores at the potential Tesla owner’s request. Stores will also carry a small number of cars in inventory for customers who wish to drive away with a Tesla immediately.
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