Tesla’s Sales Changes

Here at Motoring Weekly, we have been following the rollercoaster ride that is Tesla and Elon Musk. They seem to be doing OK and then Musk opens his mouth and the stock slides and then they recover only for another announcement to drop the stock price again.

Early in March they announced that they were going to close all retail outlets and concentrate on online sales because they clearly felt that buyers didn’t need to touch and feel the car or drive it first. However, they do expect much of what the buyer wants to do will be done at the “delivery centre” aka a dealer! Things like finance and insurance – which is odd because if you are financing a car, you need that done before you commit to buying rather than when you pick it up.

Musk and his chums at Tesla consider the dealer network as old school, yet like any major purchase, most normal consumers want to get up and close with the product. They want to experience the product – in this case – sitting in it and taking it for a drive. When the announcement was made, it caused the stock to slide and one analyst reckoned that the move would cause the stock to skyrocket to $4,000 however in the last month it has dropped to $267 from $314!

Musk was quoted as saying that 82% of Model 3 sales were by people who never had a test drive and 78% of cars were ordered online although some of those may have been to a dealer or driven someone else’s prior to the purchase. That’s a surprising number of people who are perhaps making an irrational decision – why would anyone buy a product without reviewing it? This may have become an issue because Tesla have recently changed their contract to allow people to return the car within seven days if they don’t like it however they don’t release figures of the number of returns.

A few days ago Tesla surprised the market again by dropping online sales of the bottom of the range base Model 3, partly due to sluggish sales and partly to try and get people to buy a higher priced vehicle. The problem is compounded by the fact that the Federal Tax Credit was cut by 50% in January because deliveries had reached a threshold which meant that the Credit would start to slide in value. All electric car manufacturers have the same problem, however a company such as Chevrolet or Jaguar can absorb the change whilst Tesla can’t – thanks to only selling electric vehicles. 

You can still get the premium versions of the Model 3 however the no-frills version is gone. Musk thought that a $35,000 electric car would get buyers flocking to his retail outlets however it didn’t – although closing the retail outlets would a dumb idea if you wanted everyone to go to them! They also backtracked on many of the closures presumably because buyers actually did want to visit the outlet for a sticky-beak (a gander – or look around in real English!)

Another strategy that Tesla has adopted is the one that GM started when they bought Cruise Automation and one that SoftBank wanted when they dumped a chunk of change into Uber  – an electric car based autonomous ride-sharing system. Tesla will lease you a car and then once the lease is up, it will end its life as a robo-taxi. Some industry experts wonder if this is viable because there would need to be a chunk of money handed over to the leasing company at the end of the lease and they wonder if Tesla has the cash to do this.

Tesla needs to sell cars in greater volumes with a much reduced tax credit that encouraged the early adopters. That means using traditional marketing methods to retain a positive message – you can only go so far online before there needs to be some physical contact, I call that the “Tinder Method”!

Tesla will need to attract ever larger numbers of buyers to keep the stock price up, the investors happy and the company relevant in the face of a hard charging herd of competitors.