Tesla raises prices as Musk backtracks on closing stores

Analysts fear decisions being made ‘on the fly’

Elon Musk is backtracking from a jarring change in Tesla Inc.’s retailing strategy, keeping many of the company’s stores open and raising the prices of its electric cars as a result.

Tesla will increase the cost of its vehicles by an average of about 3 per cent after rethinking a plan announced just 10 days earlier to wind down all but a small number of its stores. In a blog post, the company said about half the locations it was planning to close will stay open.

The blog post doesn’t give a rationale for why Tesla is backpedalling. Musk blindsided many sales personnel at the company with the store closings, and some investors and analysts feared the costcutting measures sent troubling signals about the state of the company’s sales and cash position.

“The seemingly spontaneous yet dramatically altering strategic decisions doesn’t lend a lot of confidence,” Joe Spak, an analyst at RBC Capital Markets, wrote Monday in a note. “It makes it seem like Tesla is making decisions on the fly and reacting to very short-term factors.”

Tesla shares fell 0.2 per cent in early Monday trading in New York, but recovered; they were up 1.5 per cent to US$288.40 by mid-afternoon.

In its blog post, Tesla said it’s sticking to plans for all sales to be done online, with more thinly staffed stores playing the role of coaching consumers on how to order cars on their phones. The retail locations also will carry inventory of vehicles for test drives and for immediate purchases.

Musk, 47, described the store wind-down announced on Feb. 28 as a cost-cutting move that enabled Tesla to offer a long-promised US$35,000 version of the Model 3 sedan, the automaker’s first mass-market vehicle. The company will continue to offer the car at that price point and will increase the cost of other variants of the sedan. The Model S and Model X also will be made more expensive, and buyers will have a week to place orders before prices rise.

Barclays analyst Brian Johnson cut his price target for Tesla shares to US$192 from US$210 on March 5, citing concern that the company’s ability to sell electric cars at high volumes with strong margins would be undermined by the store closings. He said the soonerthan-expected arrival of a US$35,000 Model 3 likely reflected the need to replenish cash after paying off a US$920 million convertible bond and added that weak U.S. sales early this year also probably hasn’t helped.

Last week, Te s l a announced it had secured as much as US$521 million in loans from Chinese banks to build a vehicle and battery factory in the country. It also amended a separate asset-backed credit agreement, increasing how much it can borrow by as much as US$700 million.

Tesla is also in talks with top Chinese battery manufacturer Contemporary Amperex Technology Co. Ltd. about supplying its plant near Shanghai, sources said.