Tesla turns back on bold plans to close all stores

Tesla is attempting to direct their brand to a younger audience, making online sales their main source of income. This might seem to equate to less overall sales due to the fact that they’re focusing on a certain demographic; however, Tesla’s Elon Musk has stated that this is only one strategy to build their business further. The California-based company had also initially announced that they were planning to drop the prices of all their vehicles by 6%, according to CNBC, yet have now changed their minds, stating that vehicle prices will be instead raised by 3% on all models except for the Model 3, which at $35,000 USD will be affordable for majority of people — something which you wouldn’t expect from a Tesla product. These new approaches, according to the company’s analytics, will save money in order to guard Tesla from future losses.

Elon Musk laid out the rationale for Tesla’s changes in successive company-wide emails. The original message stated that Tesla is converting all of their sales to online only for several reasons. According to Tesla’s analytics, out of all Model 3 orders to date, a huge majority–78%–were ordered on the Tesla website, meaning that stores, which use a considerably larger amount of money to set up, were only bringing in 22% of the sales revenue. Musk initially announced that all showrooms and Tesla stores around the world would be closed, which would’ve meant that less money would be spent on property taxes, furnishing, and sales staff. However, he changed course on the plan after Tesla stocks dropped by 3% on the Friday it was announced. Now, showrooms will be kept but nearly all orders will be completed online instead of physically purchasing them. While some may argue that every driver would want a test-drive for their vehicle prior to purchase, Elon also stated that 82% of people that bought the Model 3, in fact never test drove their vehicle before buying. It seems that customers trust in the company enough to not need a test drive, and in case buyers aren’t satisfied with their purchase, Tesla is offering free returns “within one week of arrival, or 1,000 miles for a full refund,” said CNBC. Tesla’s brand and policies seem to inspire the trust necessary to make the switch to online-only sales possible. Plus, as Elon said himself quite confidently, “It’s 2019. People want to buy online.”.

This online exclusivity also adds an effect of scarcity to the brand, as technically there’s now one less way to purchase their products. Exclusivity encourages individuals to put more interest into the product as a sense of limitedness is associated alongside it. If the strategy pays off, that will mean more customers, and those increased sales, along with money saved from minimizing showroom usage, may help Tesla turn a profit. The balance of higher demand mixed with less profit per product allows a steady customer flow for Tesla since there will be a new set of customers looking for new and upcoming products in future. This opens up many new doors for Tesla including the ability to raise product prices slightly in future for more profit, and a gain in their customer base. Tesla is also turning to target a younger demographic as the youth will be their upcoming source of major income. Elon Musk has mentioned various times that younger people simply like to shop online better than in-store, so this new change should attract more the next generation of car buyers. Buying online is easier, quicker, and more convenient for most people.

Still, closing stores could’ve be a problem for Tesla as this forced them to lay off workers. With the amount of workers departing from Tesla now, as well as prominent figures that have left the brand in past, negative associations could’ve be left on the brand. Most recently, lawyer Dane Butswinkas left Tesla in February 2019 after only two months of employment, according to Bloomberg. In addition, with highly-respected figures leaving the brand by their own will, it could be seen that there is problems within the company’s management causing resignation. With a company laying off workers in a very abrupt period of time, like Tesla would’ve after closing the majority of stores, people may not have wanted to apply for work within the business in fear of being another laid off worker.

Tesla will keep a steady amount of showrooms in order to achieve the best of both worlds for their sales. They seem to be focusing on a fair median, which now may make Tesla seem unprofessional, as they have suddenly reversed course on an equally suddenly announced bold plan. With Elon Musk smoking marijuana on Joe Rogan’s podcast, violating investment rules with misleading tweets, and now suddenly changing his mind on plans which were released with confidence, Musk’s trustworthiness may take another hit. If their CEO continues to change his mind in future on major plans which could largely affect the company, will Tesla still maintain their reputation or will people view them as more of a joke?

Still, Tesla’s plan to focus more on their online-sales in attempt to gain a wider audience through today’s youth, could bring the company to a new level and boost their sales. The strength of the strategy may depend on the reliability of the analytics it is based on. Although even being based on facts, no strategy can be proved successful until it has been put into action. With Tesla’s shares dropping 8% since the day Elon made the announcement, will Tesla still continue to run strong?

Image: Ourfiniteworld / edpell