Sun | Dec 5, 2021

Tesla closing stores to reduce costs for the Model 3

Published:Wednesday | March 6, 2019 | 12:00 AM
Buyers look over a Model 3 in a Tesla store in Cherry Creek Mall in Denver on February 9, 2019.

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 US$35,000.

The change will allow the Silicon Valley automaker to begin selling its Model 3 for US$35,000 — a price point that Tesla CEO 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 last Thursday started at US$42,900.

To save money, Tesla will close many of its stores, but leave some open as galleries or “information centres” in high-traffic areas. 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,” Musk told reporters during a conference call. “It is excruciatingly difficult to make this car for US$35,000 and be financially sustainable.”

The online sales shift will enable Tesla to lower all vehicle prices by 6 per cent, on average, including its higher-end Model S and Model X.

All other major automakers rely on vast dealer networks, but 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 gasolene.

Although he said going online-only was a difficult decision, Musk believes it’s the right one.

“It’s 2019,” he said. “People want to buy things online.”

That is particularly true of younger, technologically fluent consumers who already are accustomed to buying almost everything at Amazon and having it delivered to them quickly, said Karl Brauer, executive publisher of Kelley Blue Book.

Musk “doesn’t need the whole world to buy into this,” Brauer said. “All he needs is the same basic demographic that has been interested in his cars from day one.”

Although he said he didn’t know for certain, Musk predicted there’s enough pent-up demand to sell about 500,000 Model 3s annually at the starting price of US$35,000.

The store closures will come on top of a decision to cut 3,150 jobs , or about 7 per cent of Tesla’s workforce, announced earlier this year.

Despite the austerity measures, Musk told reporters Tesla will lose money in the current quarter ending in March, back-pedalling a statement he made last October when he pledged the company would remain profitable from that point on. But Musk said it’s “likely” Tesla will bounce back with a profit during the April-June period.