Mixed responses to the Tesla move
Some see that move as a sign of desperation as the company tries to save cash. It follows also on the company announcing reduced earning expectations. The move also follows after Tesla had said recently that dealerships were an important part of its retailing strategy. Tesla shares fell sharply on the news.
However, Tesla may be hoping that the move will work. Tesla sells premium cars for the most part that cost a great deal to manufacture. Using dealerships means that they must get a good share of the profit and a large markup from the cost of production. There is no haggling on price either when sales are direct online. In many states Tesla could not operate retail stores in many states in any event because only franchised dealerships are allowed. This has resulted in Tesla already having considerable experience in selling on line. Consumer Reports was so impressed by Tesla’s online sales program that it said it was a source of inspiration.
Tesla has so far aimed at wealthier buyers with more expensive models. Having showrooms often in upscale shopping malls may have been cost-effective for selling the most expensive models such as the Model S which starts at $76,000 but may not be for the less expensive Model 3 models now being produced. There will be the disadvantage of not being able to test drive the cars. However, the number of customers who buy Tesla’s without a test drive is quite large Tesla also allows the return of a vehicle within a week or certain mileage.
Tesla counting on changes in consumer behavior
Tesla is taking a big risk in such a radical restructuring of its way of selling cars. Many customers no doubt want to test drive any car they buy. However, 78 percent of all Model 3 sales were already on line. Millennials, key targets of the Model 3 brand, already as a group have favorable views of the Tesla brand and are keen to buy over the Internet. The seven-day return policy can perhaps replace the test drive. It will be an interesting experiment to see if selling vehicles only online can be a success. Millennials have already shown that they will buy used cars online through platforms such as Shift and Carvana. The latter company does not provide any test drives.
Tesla gets large loan to build facility in China
Tesla has secured a loan of as much as $521 million US from Chinese banks to help finance its Chinese vehicle and battery factory. This moves Tesla a step closer to producing Model 3 sedans in its first overseas plant. The loans from several Chinese banks are to mature in 2020. In January, Chief Executive Officer (CEO) Elon Musk estimated that it would take roughly $500 million to get the plant up and running and producing up to 3,000 Model 3s a week.
Tesla is the first company to have total ownership of its Chinese facilities after long negotiations with the Chinese. Musk said he expected production of Model 3s and batteries to begin by the end of this year. Ground for the new facility was broken last January 7.
Tesla Model Y
On Twitter, Musk announced that the new Model Y will be unveiled later this month: “The new crossover vehicle will be revealed March 14 in an event at the Los Angeles Design Studio, Musk said on Twitter Sunday. The Model Y, as a crossover approaches sport utility vehicle styling while built on car platforms, Musk tweeted, is about 10 percent larger than the Model 3 sedan and will “cost about 10 percent more & have slightly less range for same battery.”
