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Tesla plans to raise prices and backpedals on closing most stores

Tesla plans to raise prices and backpedals on closing most stores
Tesla vehicles for sale in the parking garage of the Westfield Topanga shopping center in Canoga Park. (Mel Melcon / Los Angeles Times)

Elon Musk is backtracking from a jarring change in Tesla Inc.’s retail strategy, keeping many of the automaker’s stores open and raising the prices of its electric cars as a result.

Tesla will increase the cost of its vehicles by an average of about 3% after rethinking a plan, announced just 10 days earlier, to wind down all but a small number of its stores. In a blog post, the company said about half the locations it was planning to close will stay open.

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The blog post doesn’t say why Tesla is backpedaling. Musk blindsided many sales personnel at the company with the plan to close the stores, and some investors and analysts feared the cost-cutting measures sent troubling signals about the state of the company’s sales and cash position.

“The seemingly spontaneous yet dramatically altering strategic decisions doesn’t lend a lot of confidence,” Joseph Spak, an analyst at RBC Capital Markets, wrote in a note Monday. “It makes it seem like Tesla is making decisions on the fly and reacting to very short-term factors.”

“This looks like amateur hour,” Arndt Ellinghorst, an analyst at Evercore ISI, said in a note.

“There should be no argument that this was a better topic for internal discussion before what clearly has been and will be two months of pure price confusion for the consumer,” Ellinghorst said.

The announcement, however, was not met with the same skepticism on Wall Street.

Tesla shares rose $6.78, or 2.4%, to $290.92.

In its blog post, Tesla said it’s sticking to plans for all sales to be done online, with more thinly staffed stores playing the role of coaching consumers on how to order cars on their phones. The retail locations also will carry inventory of vehicles for test drives and for immediate purchases.

Musk, 47, has described the store wind-down announced Feb. 28 as a cost-cutting move that enabled Tesla to offer a long-promised $35,000 version of the Model 3 sedan, the automaker’s first mass-market vehicle. The company will continue to offer the car at that price and will increase the cost of other variants of the sedan. The prices of the Model S and Model X also will rise, and buyers will have a week to place orders before they do.

Barclays analyst Brian Johnson cut his price target for Tesla shares to $192 from $210 on March 5, citing concern that the company’s ability to sell electric cars at high volumes with strong margins would be undermined by the store closings.

“We have to wonder how engaged and motivated Tesla retail employees will be in the short run after being [blindsided] by the move and even now still potentially being held in limbo,” Spak said.

Johnson said the sooner-than-expected arrival of a $35,000 Model 3 probably reflected the need to replenish cash after paying off $920 million in convertible bonds and added that weak U.S. sales early this year also probably haven’t helped.

Last week, Tesla announced it had secured as much as $521 million in loans from Chinese banks to build a vehicle and battery factory in the country. It also amended a separate asset-backed credit agreement, increasing how much it can borrow by as much as $700 million.

Tesla is in talks with top Chinese battery manufacturer Contemporary Amperex Technology Co. about supplying its plant, which is being built on the outskirts of Shanghai, people familiar with the matter said.

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Tesla also announced in a regulatory filing Monday that it was issuing about $13.8 million in stock in connection with an acquisition of car-hauling trucks and trailers from Central Valley Auto Transport Inc., a carrier company near Visalia, Calif.

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