Tesla Reverses Decision to Shut Down All of its Retail Stores, Will Keep Some Open & Raise Prices
Last week, Tesla CEO Elon Musk made a surprising announcement the the electric automaker would close all of its retail locations and move vehicle sales to online only in a cost cutting move. In the process, all of Tesla's retail employees were laid off.
Now Tesla is backtracking on its decision to close all of its retail locations. In a late night announcement on Sunday, Tesla said that it is keeping around half of its retail locations open will raise prices by 3 percent for the high-end Models like the Model S and Model X SUV to help pay for it.
The moves will help Tesla to remain profitable while selling a lower margin $35,000 Model 3.
"Over the past two weeks we have been closely evaluating every single Tesla retail location, and we have decided to keep significantly more stores open than previously announced," the electric carmaker said in a statement.
"As a result Tesla will need to raise vehicle prices by about 3 percent on average worldwide."
Tesla Counting on the Model 3 to Maintain Profitability
Tesla's cost cutting measures come as the automaker prepares to deliver the first of the $35,000 base Model 3 vehicles to customers after nearly three year wait. Tesla began accepting reservation for the Model 3 in March 2016, after announcing that it would be the company's first mass-market electric car with a starting price of $35,000.
When reservations were opened, customers immediately lined up, putting down a $1,000 deposit to reserve one. Musk tweeted at the time there had been 180,000 orders in the first 24 hours.
Since then, the electric automaker received over 325,000 deposits for the new Model 3, with some estimates as high as 450,000. Tesla hasn't publicly announced the exact figure and some customers cancelled their orders due to longer than promised wait times.
However, when the Model 3 began rolling off the assembly line in July 2018, Tesla was accused of a "bait and switch" from only building the more expensive and more profitable versions first, such as the performance and long-range Models.
The Model 3 Performance starts at $58,000 before any EV incentives, well above Musk's promise of a $35,000 electric car. It wasn't until last week that Tesla announced it would began delivering the first $35,000 Model 3s in 2-4 weeks.
A Tesla retail store in New Jersey. Photo: Michael Brochstein/SOPA Images/LightRocket via Getty Images
The Model 3 now comes in 6 configurations before adding options, including rear-wheel-drive (RWD) versions of a Standard Range (the $35,000 Model 3), Standard Range Plus, Mid-Range and Long Range. All-wheel-drive Model 3's include the Long Range and Performance. The standard range RWD Model 3 offers 220 miles of range, while the Long Range RWD is rated at 325 miles.
Tesla's $35,000 Model 3 comes with manual cloth covered seats and base trim, which includes a basic audio system and standard maps and navigation, all designed to keep production costs down. Drivers wanting Tesla's Autopilot autonomous driving software in the Model 3 will need to pay and additional $3,000 for the option.
Tesla in Discussions with China's CATL to Supply Batteries for the Model 3
Separately, Bloomberg reported today that Tesla is in discussions with Chinese battery maker Contemporary Amperex Technology Co Ltd (CATL) to supply lithium-ion batteries for the Model 3.
Tesla is seeking to localize battery cell production to supply the Shanghai plant. Tesla plans on building the Model 3 and upcoming Model Y crossover at the China factory.
In January, sources told Reuters that Tesla had signed a preliminary agreement with China's Tianjin Lishen to supply batteries for its new Shanghai factory. The Shanghai factory is important for Tesla to tap into the Chinese market.
Tesla's Shanghai factory will allow the automaker to avoid China's steep import tariffs on U.S.-made autos.
Last summer, the Chinese government increased tariffs to 40 percent on vehicle from the U.S. in response to the Trump administration slapping tariffs on $200 billion worth of Chinese goods. However, both sides agreed to a 90-day truce in Dec 2018, which was just extended.
Tariffs on U.S. imports are being kept at 15 percent as negotiations between the Trump administration and Beijing continue.
Tesla said potential buyers can place orders until March 18 at the current prices before they go up. Currently, the Model S and Model X models are priced starting at $79,000 and $88,000 before any incentives.
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