Musk warns of loss as Tesla winds down stores
SANFRANCISCO: Elon Musk is delivering on one big promise—a $35,000 Model 3—while falling short on another: that Tesla Inc.’s days of losing money are over.
Tesla probably won’t post a profit in the first quarter, the chief executive officer (CEO) told reporters on Thursday, contradicting several of his past predictions that the company would earn money from now on. He made the comments while announcing the long-awaited cheaper Model 3, along with a plan to trim costs by closing stores and cutting more jobs.
“Given that there was just a lot happening in Q1, and we’re taking a lot of one-time charges and there are a lot of challenges getting cars to China and Europe, we do not expect to be profitable in Q1,” Musk said on a call with reporters. “But we do think that profitability in Q2 is likely.”
Shifting to online-only ordering will enable Tesla to lower the prices of all its vehicles by an average of about 6%, according to a blog post. That’s helping Musk deliver the $35,000 version of the Model 3 for the first time, almost three years after Tesla started taking orders for the car.
“Tesla pioneered direct-to-consumer sales, and the stores were always more of an advertising portal than an actual transaction portal,” said Mike Ramsey, an automotive consultant with researcher Gartner Inc. “Closing the stores themselves is not that crazy; the real issue for Tesla is their service capability.”
Tesla will wind down many of its stores and reduce headcount over the next few months, Musk said, without giving specifics. Some of the roughly 130 outlets will remain in high-traffic locations as galleries, showcases and information centers, and others will become service and repair centers.
“There’s no other way for us to achieve the savings required,” the CEO said. He reiterated that improving service in 2019 is Tesla’s top priority and said the company will be adding jobs worldwide to address what’s become one of the biggest concerns of new customers.