Advertisement
Business

Musk makes dizzying turns with Tesla’s retail strategy

Tesla store in Pasadena
Tesla’s store on Colorado Boulevard in Pasadena.
(Al Seib / Los Angeles Times)

For years, Tesla Inc.’s Elon Musk loved his chain of store and service centers. Quarter after quarter, the carmaker kept adding more, even waging legal battles to set up shop in states where dealers tried to block him.

That changed suddenly in February, when the chief executive officer declared he was all but giving up on the retail store model. Most locations would be shut down. Ten days later, he reversed himself: Only about half that number would be shuttered. In the months since, Tesla has proceeded to keep all — or almost all — of them open.

Now, in a new twist that essentially brings Musk right back to where he was at the start of the year, he’s growing Tesla’s chain of bricks-and-mortar locations again by adding service centers. The company has added 25 since April, and more are planned.

The abandonment of the bricks-and-mortar cost-cutting effort isn’t helping profitability — the electric-car maker‘s shares are plunging again in the wake of a worse-than-expected quarterly loss. But Tesla cars continue to suffer from quality problems, and customers have complained about long wait times for service, leading the company to more than double service spending in the second quarter from the same quarter last year, to $605 million.

Advertisement

What makes the turn all the more confusing is that, after stating that the February move was part of a way to trim expenses and lower prices of Tesla cars, Musk has offered little explanation for why he keeps tweaking the approach. And for investors who have been losing faith in whether Tesla has a path to profitability, the flip-flop only adds to their concerns.

During an earnings call with analysts Wednesday, Musk didn’t say why Tesla’s store count appeared to hold steady with the first quarter. He retreated from the plan to wind down all but a small number of stores in high-traffic areas and shift all sales online after blowback from both investors and landlords.

“A retail location is kind of like a viral seed in an area,” Musk said on the call. “It would grow organically by itself, but the retail location is actually like a viral seed. They aren’t needed; they’re like an accelerant.”

Advertisement

Tesla’s second-quarter loss and the departure of another senior executive sent shares tumbling as much as 15% on Thursday. The stock is down about 32% for the year.

When asked by an analyst how he envisioned Tesla’s retail footprint evolving over time, Musk again downplayed the role that stores will play in the future. The CEO said demand for Teslas is strong in locations where the company has service centers and charging stations and can offer attractive financing and affordable prices.

“And any place where those four things are true, our sales are great,” he said. “So we’re rolling out service centers like crazy. Service centers are the key to sales, not the retail location.”


Newsletter
Get our weekly California Inc. newsletter
Advertisement