Industryweek 35011 Elon Musk 2019

Musk Completes Dizzying 360-Degree Turn on His Plan for Retail

July 25, 2019
After stating that the move was part of a way to trim expenses and lower prices of Tesla cars, Musk has offered little explanation for why he keeps tweaking the approach.

For years, Tesla Inc.’s Elon Musk loved his chain of store and service centers. Quarter after quarter, the carmaker kept adding more, even waging legal battles to set up shop in states where dealers tried to block him.

That changed suddenly in February, when the chief executive officer declared he was all but giving up on the retail store model. Most locations would be shut down. Ten days later, he reversed himself: Only about half that number would be shuttered. In the months since, Tesla has proceeded to keep all -- or almost all -- of them open.

Now, in a new twist that essentially brings Musk right back to where he was at the start of the year, he’s growing Tesla’s chain of brick-and-mortar locations again by adding service centers. The abandonment of this cost-cutting effort isn’t helping profitability -- the electric-car maker‘s shares are plunging again in the wake of a worse-than-expected quarterly loss.

What makes the 360-degree turn all the more confusing is that, after stating that the February move was part of a way to trim expenses and lower prices of Tesla cars, Musk has offered little explanation for why he keeps tweaking the approach. And for investors who have been losing faith in whether Tesla has a path to profitability, the flip-flop only adds to their concerns.

During an earnings call with analysts Wednesday, Musk didn’t say why Tesla’s store count appeared to hold steady with the first quarter. He retreated from the plan to wind down all but a small number of stores in high-traffic areas and shift all sales online after blowback from both investors and landlords.

“A retail location is kind of like a viral seed in an area,” Musk said on the call. “It would grow organically by itself, but the retail location is actually like a viral seed. They aren’t needed, they’re like an accelerant.”

Tesla’s second-quarter loss and the departure of another senior executive sent shares tumbling as much as 15% on Thursday. The stock is down about 32% for the year.

When asked by an analyst how he envisioned Tesla’s retail footprint evolving over time, Musk again downplayed the role stores will play in the future. The CEO said demand for Teslas is strong in locations where the company has service centers and charging stations and can offer attractive financing and affordable prices.

“And any place where those four things are true, our sales are great,” he said. “So we’re rolling out service centers like crazy. Service centers are the key to sales, not the retail location.”

By Dana Hull

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