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There is a trend with Tesla chief Elon Musk. He has an idea, something he has decided, or something he wants to Tweet, and off it goes. He doesn’t always think it through, nor does he check with his staff who have to enact whatever he had decided.
The latest example is Tesla backing off Musk’s pronouncement two weeks ago that the company would close its stores and convert sales to 100% online. Today, the company announced it would keep a large number of stores open, and raise prices on vehicles except for the base model $35,000 Model 3.
The company recently closed 10% of its stores, but now says it will re-open some of those. Meanwhile, the company also said that 20% of remaining stores are under scrutiny to see if the company wants to keep them open.
The focus on store closing has been to trim costs. But apparently some Tesla staffers have shown Musk how most of the stores more than pay for themselves, and that without stores the company will lose more in sales and profit than it would pick up by getting out of leases and firing staff.
“As a result of keeping significantly more stores open, Tesla will need to raise vehicle prices by about 3% on average worldwide,” the company said in a statement. “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.
All Tesla sales worldwide will still be done online, the company said, 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. Cars will still be available for test drives at stores at the potential Tesla owner’s request. And stores will also carry a small number of cars in inventory for customers who wish to drive away with a Tesla immediately.
Ana Nicholls, analyst at The Economist Intelligence Unit, says that with inflation accounted for, the real price hike of Teslas is about 1%, and she does not foresee that impacting sales in a negative way. “Slightly more worrying, though, she says, is Tesla's flip-flop on its store closures. “Why didn't the company do a proper review of its store network before its first announcement? Although the impact on customers will now be softened, Tesla staff will not thank managers for putting them through that uncertainty unnecessarily. It also adds to the impression of confusion at the top of Tesla, where contradictory announcements have become a bit of a habit.”
Some states require that a car company maintain a physical location in order to do business in that state. Car dealers over the decades have gotten state legislatures to pass franchise laws that prohibit car companies from selling directly to consumers. Musk, who has no appetite for doing business with traditional third-party dealers, has challenged the model from the start of his operations.
"From our discussions with [automakers] over many years, most auto companies would love to sell vehicles the way Tesla [wants to]," Morgan Stanley analyst Adam Jonas wrote last week in a note to investors. "There's just one catch. They can't. It's against the law."
Musk is known for being erratic with announcements. Last August, Musk tweeted that he was looking at taking Tesla private without following SEC guidelines about making such announcements. The result was that Musk was forced to step down as chairman of the company, giving way to Robyn Denholm.
Investors took the decision on keeping stores open positively, sending shares up 2.4% to $290.92 Monday.