Tesla’s Big Announcement Isn’t All Rosy

Graphic of a Tesla car.

Tesla’s exciting news last week that it would start selling its Model 3 sedan for $35,000 before incentives was overshadowed by the rest of the company’s announcement.

The electric vehicle manufacturer also said that it will close its brick and mortar stores and rely just on online sales. That means store closings and layoffs, which indicates hard times for the company.

Online shopping might be booming, but automobiles aren’t something a consumer would buy before test driving. Cars are a major expense for the average individual and not a purchase that’s taken lightly.

The company announcement said that its generous return policy makes it so test drives aren’t necessary, but a consumer isn’t going to want to plunk down $35,000 just to see how they like a car. That’s not a workable strategy.

Furthermore, all states have different rules and regulations surrounding automobile sales. Tesla’s decision to shutter its stores could have all sorts of confusing regulatory implications and it’s unclear how the company is going to deal with this issue.

Tesla said that the layoffs and store closings were necessary to cut the price of the Model 3, but it’s hard not to think that the company is desperate for demand. Indeed, Tesla announced a $2,000 price cut just two months ago in early January.

According to media reports, Elon Musk also said in an email to employees that the company would curtail its spending on sales and marketing. A move like that is strange if the company plans to just rely on online sales. It seems counterproductive to cut marketing at the same time the company is shutting physical stores.

But Musk is known to pull off the impossible, so it’s definitely not time to write off the company. Consumers might be enticed by the cheaper price tag of the $35,000. All we can do is wait and see.