Elon Musk Looking to Make Major Changes to Tesla
Elon Musk has made a name for himself through the years for his business moves that go well against the status quo. Whether it’s sending an electric car into space or creating the world’s fastest production car, Musk continues to make pioneering decisions with his latest project– Tesla. On February 28th, Musk announced that Tesla would be closing most of its physical stores in an attempt to decrease the price of their luxury cars. All sales of the Tesla cars would be through online databases, which would cut costs and make the cars more affordable. The move would drop the price of each car by approximately 6%. This would be possible with the money they would save by not paying rent for the stores (Schultze).
After considering the pros and cons of the move, Musk decided to keep most of the stores that he was planning on shutting down. He cut out 10% of stores, but these stores were planning on closing prior to the announcement. Instead of reducing the price of each car by 6%, Tesla announced that most cars will see a 3% increase in price. Erik Gordon, a management expert out of University of Michigan’s Ross School of Business, stated that he feels that “the company is in scary territory”. He also stated that “Musk’s flip-flop retail strategy makes it seem like Musk is winging it and the board is letting him (Boudette).” The Model 3 is going to be a deciding factor in the company’s future success. Tesla is currently working on shipping the car out to Europe and China, but there is little progress being made.
Tesla announced that 20% of its stores will be under review in the upcoming months. Whether they stay open will be based on their sales and profitability (Keane). The inconsistent message that management is sending to its workers is leaving a bad taste in the mouths of the Tesla sales force. The inconsistency and instability of this message may lead to resentment on the part of the employees and ultimately result in decreased sales (Gordon).
Effect on the Stock
One thing that investors do not handle well is volatility. If you are investing in an Elon Musk company, you realize that this decision comes with its “roller coaster ride” effect. Many times now, investors have dealt with these moves that Musk makes, but this may be the last straw. The day after Musk made the announcement about the elimination of retail stores, Tesla stock dropped from 319.88 points to 294.79 (almost 9%). It seems that Musk’s reversal of this decision in response to the drop may have made matters worse. The stock closed on March 15, 2019 down a further 7%, for a total of 275.43 (16%) from its close on February 28th. On March 13, Goldman Sachs released reports to sell all Tesla stock as they predict that the company will not meet its quarterly earnings. Analysts confirmed that Tesla’s lower than average monthly delivery indicators do not look promising for a successful quarter (Melloy). All these indicators lead the average investor to believe that the stock value has not yet hit bottom. It will be interesting to see which direction the stock value goes once the Q1 earnings report is released.
What’s Next for Tesla?
Electric cars seem positioned to be the vehicle of the future. The Model 3 is a major step for the growth of the company. The mass-production of cars for everyday use is one of the major visions Musk announced when he started the company. However, at a price of $35,000, I feel that it is still too expensive for most people. If they can somehow figure out ways to reduce the retail price of their base car, the added volume may be enough to make the move successful. US News reported that the two main reasons why people tend to stay away from electric cars are concerns about range and length of charging time (Loveday). Tesla should focus on improvements in battery life and charging efficiency. The company should also consider investing in charging ports across the United States to make charging electric cars easier for everyone. If they can implement these innovations, I believe it will satisfy investors and be beneficial to the overall long-term success of the company.
Boudette, Neal E. “Tesla's Troubles Mount: Shuttered Showrooms and Sinking Shares.” The New York Times, The New York Times, 6 Mar. 2019, www.nytimes.com/2019/03/06/business/energy-environment/tesla-stock-strategy.html.
Gordon, Aaron. “Tesla Employees Call 'Bullshit' On Online Sales Claims Amid Retail Closure Chaos.” Jalopnik, Jalopnik, 11 Mar. 2019, jalopnik.com/tesla-employees-call-bullshit-on-online-sales-claims-am-1833201246.
Keane, Sean. “Tesla Hits Brakes on Retail Store Closures, Will Raise Prices Instead.” Roadshow, CNET, 11 Mar. 2019, www.cnet.com/roadshow/news/tesla-hits-brakes-on-retail-store-closures-will-raise-prices-instead/.
Loveday, Steven. “11 Reasons People Don't Buy Electric Cars (and Why They're Wrong).” U.S. News & World Report, U.S. News & World Report, cars.usnews.com/cars-trucks/why-people-dont-buy-electric-cars.
Melloy, John. “Goldman: Tesla's Earnings and Deliveries Likely to Disappoint This Quarter, so Sell the Stock.” CNBC, CNBC, 13 Mar. 2019, www.cnbc.com/2019/03/13/goldman-teslas-earnings-and-deliveries-likely-to-disappoint-this-quarter-so-sell-the-stock.html.
Schultze, George. “Tesla Continues To Surprise Investors With Electric Shocks.” Forbes, Forbes Magazine, 15 Mar. 2019, www.forbes.com/sites/georgeschultze/2019/03/15/tesla-continues-to-surprise-investors-with-electric-shocks/#52118cca11b1.