Tesla cuts car prices, shuts stores and shifts to online-only sales

Buyers look over a Model 3 in a Tesla store in Denver.

Elon Musk has been striving to lower the price of Tesla’s Model 3 in order to appeal to more consumers.Photograph: David Zalubowski/AP

Tesla is closing most of its stores in a cost-cutting measure, so it can lower the starting price of its Model 3 to $35,000 (£26,400).

Elon Musk, the billionaire chief executive of the electric car and technology company, said a shift to selling online only was essential to make it financially viable to lower the current starting price of $42,900.

He said: “This is the only way to achieve the savings for this car and be financially sustainable. It is excruciatingly difficult to make this car for $35,000 and be financially sustainable.”

Musk has been striving to lower the price of Tesla’s Model 3 in order to appeal to more consumers and generate the sales the Silicon Valley company needs to survive.

To save money, Tesla will close many of its stores but leave some open as galleries or “information centres” in busy areas. Musk declined to specify how many stores would be closed or how many employees would be laid off.

The company has 378 stores and service locations worldwide. It has a total of 23 outlets in the UK and Ireland, consisting of 18 stores and five service centres.

Given their locations and footfall they are unlikely to be closed, the Guardian understands, though the company has not made any guarantees that specific stores would stay open.

The online sales shift will enable Tesla to lower all vehicle prices by 6%, on average, including its higher-end Model S and Model X.

Although he said going online only was a difficult decision, Musk said it was the right thing to do.

“It’s 2019,” he said. “People want to buy things online.”

That is particularly true of younger, technologically fluent consumers who already are accustomed to buying almost everything at Amazon and having it delivered to them quickly, said Karl Brauer, the executive publisher of Kelley Blue Book.

Musk “doesn’t need the whole world to buy into this”, Brauer said. “All he needs is the same basic demographic that has been interested in his cars from day one.”

Starting from Friday, customers can buy Tesla’s cars using computers in the company’s stores. It is not clear how this will be materially different from the process today.

It is not yet known if prospective buyers will continue to be able to test drive models from any stores that remain open.

For those drivers who may now be too far away from a store they will also be able to buy online, and claim a full refund within seven days or 1,000 miles, though Musk claimed: “we are confident you will want to keep your Tesla”.

Although Musk said he did not know for certain, he predicted there was enough pent-up demand to sell about 500,000 Model 3s annually at the starting price of $35,000.

However, the executive indicated the UK version would be at least 25% more in dollar terms, implying a UK price of £33,000 for the ‘“affordable” Model 3.

Buyers will also have to wait far longer than they do when shopping on Amazon.

A US buyer who places an order for the Model 3 at its new lower price was likely to get it by the end of June before a tax credit for electric vehicles was scheduled to be reduced, Musk said.

The store closures will come on top of a decision to cut 3,150 jobs, or about 7% of Tesla’s workforce, announced in January.

Despite the measures, Musk said Tesla would lose money in the current quarter ending in March, backpedalling from a statement he made last October when he pledged the company would remain profitable from that point on. However, Musk said it’s likely Tesla would bounce back with a profit during the April-June period.

Tesla’s shares fell nearly 6% in early trading on Friday to $301.20.

The company, based in Palo Alto, California, is slashing costs only a few months after paying half of a $40m settlement of a case that the US Securities and Exchange Commission filed against Musk last September after he tweeted that he had lined up financing for a potential buyout for the company. The SEC alleged Musk misled investors after concluding he did not have the money to pull off the deal.

The SEC has asked a federal judge to hold Musk in contempt after he posted another tweet about key Tesla information without getting prior approval from the company, as required in the settlement of its previous case.