When Tesla first started producing its affordable Tesla Model 3 approximately two years ago, everyone was excited about the prospect of affording a Tesla. The car manufacturer promised a $35,000 base version with a standard battery, and even though production of Model 3 started in the middle of 2017 and Tesla had many orders for the $35,000 version of Model 3, the company has only started to produce the base version Model 3 at the beginning of March 2019. Instead, Tesla started with the production of the long range–battery Model 3 back in July 2017, which made sense at the time, with the slow production of Tesla Model 3 at the beginning, they gave priority to the more profitable versions of Model 3.
That somehow worked well for Tesla and Model 3. Tesla had incredible Model 3 sales numbers in the fourth quarter of 2018, ending the year by selling 25,250 cars in December 2018 in the US alone, compared to only 1,060 in December 2017, giving Model 3 the highest monthly sales numbers ever for a plug-in electric car. Tesla is trying to boost these outstanding numbers in the first quarter of 2019 and the improvement in production and sales numbers has finally allowed Tesla to start the production and delivery of the base version of Model 3.
The Details, as Usual, Were in Elon Musk’s Email
Like always, Elon Musk likes to keep employees informed of the company’s plans and so he sent an email explaining the company’s decisions.
Last month, I noted in my email that the fundamental issue Tesla must overcome is that our products remain too expensive for most people. We know there are many people who want to buy Model 3, but simply can’t afford to do so.
That is why we’re excited to announce today that we are now offering the standard Model 3 at $35,000. This is a significant milestone for Tesla, the culmination of years of hard work by employees across the company, and something of which you should all be very proud. You can read the details of the announcement on our blog:
Tesla is Moving All Their Sales Online Too
Another exciting announcement Musk mentioned in his email and Tesla revealed in their newsletter was that the company is going to move all their sales exclusively online and close most of their stores around the world.
In addition, we are also making the decision to shift all sales worldwide to online only.
Last year, 78% of all Model 3 orders were placed online, rather than in a store, and 82% of customers bought their Model 3 without ever having taken a test drive. Customers can now buy a Tesla in North America via their phone in about 1 minute, and that capability will soon be extended worldwide. We are also making it much easier to try out and return a Tesla without a test drive. You can now return a car within 7 days or 1,000 miles for a full refund. Customers are becoming increasingly comfortable making purchases online, and that is especially true for Tesla — which is a testament to the products we make.
As a result, over the next few months, we will be winding down many of our stores and significantly reducing our spend on sales and marketing, which will help make the price changes we’ve announced today possible. Shifting all sales online combined with other ongoing cost efficiency will enable us to lower all vehicle prices by about 6% on average, allowing us to achieve the $35,000 Model 3 price point.
A small number of stores in high-traffic locations will remain as galleries, showcases and Tesla information centers. At the same time, we will be increasing our investment in the Tesla service system and manufacturing, and I expect that headcount to grow next year.
Unfortunately, this means that some jobs will be impacted or transitioned to other areas of the business. This is a hard decision, but it necessary to make our cars more affordable. Our sales team has fought on the front lines of advancing our mission and has been our connection to hundreds of thousands of customers along the way. I want to express my sincere gratitude for all that you’ve done.
Reactions to the Announcement
Even though closing down the stores would not only allow Tesla to start delivering the base version of Model 3 but would also lower the prices of other Tesla Models an average of 6%, investors didn’t have a good reaction to Musk’s email. Tesla’s stock price actually fell from $319.88 on Thursday to $292.52 at its lowest point on Friday following the announcement. Financial analysts criticized this move too, Morgan Stanley investment bank called it a sign of a brand that may be losing its halo of exclusivity.
“Tesla significantly increased its efforts to promote the sale of cheaper cars. … While this may stabilize the air-pocket in Q1 sales, we’re concerned it’s a sign of a brand that may be, at the margin, losing its halo of exclusivity. We think the bears have more material to work with than bulls here.”
Musk doesn’t agree with that. When the first Model 3 was rolled out in 2017, he said, “The whole point of Tesla was to build a great affordable electric car.” And Tesla is finally delivering this promise, 3 years later.
Buyers are excited about the news though; those who have ordered the base version Model 3 are excited to be finally getting their cars and those considering buying a Tesla are equally excited about sales movie online. With stores shutting down, test drives are no longer possible, or are they? Tesla has allowed potential buyers a seven-day 1,000-mile trial period, after which they can choose to keep the car or take it back and get a full refund. The company’s announcement blog seemed confident they would choose to keep it.
“Quite literally, you could buy a Tesla, drive several hundred miles for a weekend road trip with friends and then return it for free. With the highest consumer satisfaction score of any car on the road, we are confident you will want to keep your Tesla.”
Aside from the downside of people working in showrooms losing their jobs, online sales will lead to more affordable EVs, which is very likely to increase sales, which could hopefully lead to a decrease in pollution caused by gasoline-powered car exhaust.