Tesla is Closing its Physical Stores in Favor of Online Sales
Last week, Tesla said that it would be closing almost all of its physical showrooms to cut costs and decrease the price of its Model 3 sedan, despite having announced 11 new store locations across the United States less than three months ago. CEO Elon Musk believes that this change was consistent with the growing online market: “it’s 2019 - people just want to buy things online,” he said during the announcement last Thursday. Despite the lack of a test drive possibility, the change could target technology-loving customers who dislike the process of physically buying a car, including dealing with salespeople and price haggling.
In an email to employees, Musk said that last year, 78 percent of all Model 3 orders were placed online, and 82 percent of customers bought their vehicle without taking a test drive. Those who bought a Model 3 last year, however, were already fans of Tesla and had put down $1,000 deposits months before the car was available. Michelle Krebs, an analyst at Cox Automotive, said that although customers want to buy cars online, they test drive the vehicle, they want to sit in the car and learn the technology. Who’s going to show them that?”
Tesla believes that the lack of test drives will not limit online sales due to its liberal return policy. Musk states that “you can now return a car within 7 days or 1,000 miles for a full refund.” Wanting to return the car, however, might still be inconvenient; customers are likely responsible for nonrefundable sales tax as well as vehicle depreciation.
Cost cutting by closing physical locations will help Tesla bring the price of its Model 3 down to the long-promised $35,000. The company said that by shifting sales online, among other smaller changes, will help reduce the price of all of its cars by an average of 6 percent. Musk expects to make as many as 600,000 cars this year, despite delivering only 245,000 last year and around 103,000 in 2017.