Recently, electric car maker Tesla announced that they will be shutting down all of their dealerships and stores to help reduce costs as the company boosts the production of their Model 3 Telsa. Despite placing a large bet on online shopping, the closing of their retail stores still sent Tesla's stock falling.
Closing retail stores could be a sign of desperation, a view reinforced by concurrent announcements that the company has reduced its earnings expectations and will be cutting jobs. And the news was certainly jarring, coming just a few weeks after Tesla said dealerships were an important part of its retail strategy.
But there’s a chance the move will turn out to be prescient. Tesla sells premium cars that cost a lot to make. And Tesla markets those cars differently from most of its competitors: It uses direct sales, rather than working through franchised dealerships — and there’s no haggling on the price.
Relying on direct sales means there’s no dealer taking a cut or adding a markup. But in many states, laws requiring that cars be sold through franchised dealerships limited or barred Tesla from opening retail stores. As a result, Tesla already has significant experience selling online, and the process is so polished that Consumer Reports recently called it “a source of inspiration.”
Meanwhile, although no-haggle pricing is convenient, it means that Tesla can’t adjust price in response to individual buyers’ willingness to pay. 3 The lack of pricing wiggle room and Tesla’s high production costs forced the company to aim both its cars and its marketing at wealthier buyers.
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