Tesla to Shutter Stores In Favor of Online Sales

Tucked into the exciting announcement about the availability of Tesla’s $35,000 Model 3 was a significant change to the company’s operations. Tesla surprised watchers with news that it plans to close many of its 378 retail stores worldwide.

It’s not immediately clear how many stores or employees will be effected by the change. Tesla said it plans to operate an online-only sales model.

“Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower all vehicle prices by about 6% on average, allowing us to achieve the $35,000 Model 3 price point earlier than we expected,” the company said.

“Over the next few months, we will be winding down many of our stores, with a small number of stores in high-traffic locations remaining as galleries, showcases and Tesla information centers.”

Stores have been a pain for Tesla. Some states’ dealership laws have kept them from opening stores, while others allowed them to showcase the vehicles without taking orders. It seems the company would be glad to be rid of the legal wrangling necessary to open stores.

“The important thing for customers in the United States to understand is that, with online sales, anyone in any state can quickly and easily buy a Tesla,” the company said in a blog post.

Tesla also said it wants to make it easier to try out and return a car. Consumers can now return a car within seven days or 1,000 miles for a full refund.

“Quite literally, you could buy a Tesla, drive several hundred miles for a weekend road trip with friends and then return it for free,” the post said.

 

[waichner]

It states where there are no service centers (or stores for that matter), a 7 day return policy is not as good as it sounds, assuming that the car has to be picked up at a service center.

 

[JonathanD]

Can someone explain to me how online orders makes sale in all 50 states legal? The buyer would still need to register and take delivery of a new vehicle in their own state, no? That isn't counted as a sale?

 

[Spalding]

This might make sense if the delivery centers remain open. The delivery centers I've seen - and the one from which I picked up my Tesla - are far more modestly appointed than the retail "stores," and are located in inexpensive industrial areas. The retail stores I've seen in various cities are invariably in the highest-end shopping street or shopping mall available. Maybe that was necessary in the beginning to get your product in front of the right demographic - people with a certain amount of money. You could justify the insanely high rent as a form of advertising. But now that the Tesla "brand" is better known, all those leases on the most expensive real estate in town are just a burden. I've often wondered how Tesla managed to afford it. No other legacy manufacturer pays that kind of rent out on "the mile of cars."

Especially because Teslas are sold with limited options and without price negotiation, an online model might be a good fit. I would still want to test drive something before I drop something in the high five or even six figures, but that can be done with far fewer outlets.

 

[cpa]

Can someone explain to me how online orders makes sale in all 50 states legal? The buyer would still need to register and take delivery of a new vehicle in their own state, no? That isn't counted as a sale?

Maybe it is because a physical presence constitutes doing business. Maybe it is because a physical presence constitutes soliciting sales. Online presence is not the same as a physical presence (although the courts are starting to erode this particular rule -- see South Dakota v. Wayfair.)

Taking delivery is not the same as making a sale. Tesla vehicles are delivered FOB from Fremont (but the fee is included in the $1,200 dealer fee) so title changes hands at that point. Registration is moot.

Then there is the Commerce Clause.

 

[jgs]

I certainly hope closing the majority of the stores and galleries isn't Tesla's way of washing its hands of the legal issues, because Service Centers remain a sore point. I don't know about other states, but Michigan doesn't forbid only stores, but also Service Centers.

Can someone explain to me how online orders makes sale in all 50 states legal? The buyer would still need to register and take delivery of a new vehicle in their own state, no? That isn't counted as a sale?

While I can't speak for all 50 states, I can tell you how it works in Michigan, one of the worst offenders on the anti-Tesla legislation front. Here, if you order a Tesla, it's "delivered" in Ohio, loaded onto a third-party transport truck, and turned over to you at your home (or wherever you arrange) in Michigan. It's delivered with Ohio temp tabs and the paperwork necessary to register it in Michigan. When you register it, the Michigan Secretary of State collects the sales tax (which is a pisser since they get to have their cake and eat it too). It's actually pretty convenient.

By the way, Tesla does have physical presence in Michigan. They have (had?) a small gallery in (I think) Farmington Hills, and they own a tool & die or something like that in western Michigan.

 

[JonathanD]

It's delivered with Ohio temp tabs and the paperwork necessary to register it in Michigan. When you register it, the Michigan Secretary of State collects the sales tax (which is a pisser since they get to have their cake and eat it too).

Do you have to pay the tax twice (once for Ohio and once for Michigan)?

 

[jgs]

Do you have to pay the tax twice (once for Ohio and once for Michigan)?

Just Michigan.

 

[vickh]

This might make sense if the delivery centers remain open. The delivery centers I've seen - and the one from which I picked up my Tesla - are far more modestly appointed than the retail "stores," and are located in inexpensive industrial areas. The retail stores I've seen in various cities are invariably in the highest-end shopping street or shopping mall available. Maybe that was necessary in the beginning to get your product in front of the right demographic - people with a certain amount of money. You could justify the insanely high rent as a form of advertising. But now that the Tesla "brand" is better known, all those leases on the most expensive real estate in town are just a burden. I've often wondered how Tesla managed to afford it. No other legacy manufacturer pays that kind of rent out on "the mile of cars."

Especially because Teslas are sold with limited options and without price negotiation, an online model might be a good fit. I would still want to test drive something before I drop something in the high five or even six figures, but that can be done with far fewer outlets.

maybe they can do a combo delivery+Sales centers?

 

[dknieriemen]

It states where there are no service centers (or stores for that matter), a 7 day return policy is not as good as it sounds, assuming that the car has to be picked up at a service center.

 

[dknieriemen]

At this point, how can you assume anything, then complain.

 

[Geezzer]

Can someone explain to me how online orders makes sale in all 50 states legal? The buyer would still need to register and take delivery of a new vehicle in their own state, no? That isn't counted as a sale?

 

[Geezzer]

Short answer, Lots of us Tesla owners here in Michigan. No laws against owning or buying a Tesla in Michigan and Mobile service takes great care of us at our homes. But due to the states old dealership laws, Tesla is prevented from selling direct. So purchase is made in a nearby state and then car is registered in Michigan. All done over the internet in minutes. No big deal. Hope the lack of associated sales costs makes Tesla more competitive. Love not having to deal with car salesman and wondering if you got ripped off by paying more than his friends.

 

[SimonT]

I cant see this as a good idea. These cars aren't cheap and I would imagine most purchasers would want a test drive and a good look round the car before parting with that sort of cash.

 

[Tic-tac-toe]

This might make sense if the delivery centers remain open. The delivery centers I've seen - and the one from which I picked up my Tesla - are far more modestly appointed than the retail "stores," and are located in inexpensive industrial areas. The retail stores I've seen in various cities are invariably in the highest-end shopping street or shopping mall available. Maybe that was necessary in the beginning to get your product in front of the right demographic - people with a certain amount of money. You could justify the insanely high rent as a form of advertising. But now that the Tesla "brand" is better known, all those leases on the most expensive real estate in town are just a burden. I've often wondered how Tesla managed to afford it. No other legacy manufacturer pays that kind of rent out on "the mile of cars."

Especially because Teslas are sold with limited options and without price negotiation, an online model might be a good fit. I would still want to test drive something before I drop something in the high five or even six figures, but that can be done with far fewer outlets.

Agree with this. In DC, the Tesla store/showroom is located at City Center - retail shopping space that caters to high end designers like Hermes, Dior, Louis Vuitton, Gucci, etc. Premium retail space and not cheap. Same for stores in VA and MD which are located at high end malls.

Now that Tesla is putting their emphasis on lower cost cars like the M3 and the soon to be out Y, it makes sense to get rid of their retail showrooms and focus on their online sales. That's where young people are buying most/all of their stuff anyway. Why should cars be any different. Tesla wants to be a mass market car company not a luxury car company.

Delivery and service are all taken care of at service centers which are located in industrial parks. There are two in my area, one at Tyco and another in Rockville. The Tyco SC, which is next to the Audi and across the street from the Bentley dealerships, has a showroom and can easily take care of test drives.

 

[Kipernicus]

Maybe they'll reinstate the referral program, a sort of "volunteer" sales force.
Just don't go crazy with the rewards, like multiple next gen roadsters, to keep the cost reasonable.

 

[AviP]

I feel bad for Tesla employees who get hired and then fired on a whim or a quarterly report. Musk is a poor manager with the executive turnover he has been having. Unfortunately, the shorts seem to have got it right. This is not a sign of growth but another quarterly attempt at survival.

 

[gnuarm]

Love not having to deal with car salesman and wondering if you got ripped off by paying more than his friends.

Yeah, but do car salesmen ever have "friends" or only more customers?

I feel bad for Tesla employees who get hired and then fired on a whim or a quarterly report. Musk is a poor manager with the executive turnover he has been having. Unfortunately, the shorts seem to have got it right. This is not a sign of growth but another quarterly attempt at survival.

Yeah, Tesla has layoffs, then immediately start hiring to refill those positions on the assembly line. This time I think they will go for a year or two and realize the sales they will be missing become a larger percentage of the total they could be selling and start selling through stores again. Heck, even this past quarter they were asking people to come to the local stores to test drive a car and even buy one from inventory.

 

[R.S]

Heck, even this past quarter they were asking people to come to the local stores to test drive a car and even buy one from inventory.

The inventory and used car sales is what I am most confused about. Buying used from Tesla isn't really too great as of now, but with fewer sales people and stores, this could easily become even more frustrating. Same goes for cars that are new, but already built.

The order process on the internet is easy enough, but I wouldn't buy a used car w/o having a look at it first.

 

[Snobun]

I am in NM with no showrooms or service centers. My online order was taken to AZ, then delivered to my home by a 3rd party transport. CA tags were fedex to me beforehand. I registered the car in NM and paid sales tax directly to my DMV. It was actually an easy process. I did have to pay for the car in full before they’d put my car on the truck to NM.