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Tesla Raises Prices as Musk Backtracks on Closing Stores

Young-Sam Cho and Elisabeth Behrmann
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Tesla Raises Prices as Musk Backtracks on Closing Stores

(Bloomberg) -- Elon Musk is backtracking from a jarring change in Tesla Inc.’s retailing strategy, keeping many of the company’s stores open and raising the prices of its electric cars as a result.

Tesla will increase the cost of its vehicles by an average of about 3 percent after rethinking a plan announced just 10 days earlier to wind down all but a small number of its stores. In a blog post, the company said about half the locations it was planning to close will stay open.

The blog post doesn’t give a rationale for why Tesla is backpedaling. Musk blindsided many sales personnel at the company with the store closings, and some investors and analysts feared the cost-cutting measures sent troubling signals about the state of the company’s sales and cash position.

“The seemingly spontaneous yet dramatically altering strategic decisions doesn’t lend a lot of confidence,” Joe Spak, an analyst at RBC Capital Markets, wrote Monday in a note. “It makes it seem like Tesla is making decisions on the fly and reacting to very short-term factors.”

Tesla fell 0.2 percent to $283.50 as of 9:30 a.m. Monday in New York. The shares erased gains in pre-market trading after the company announced in a regulatory filing that it was issuing about $13.8 million in stock in connection with an acquisition of car-hauling trucks and trailers from a carrier company north of Los Angeles.

In its blog post, Tesla said it’s sticking to plans for all sales to be done online, with more thinly staffed stores playing the role of coaching consumers on how to order cars on their phones. The retail locations also will carry inventory of vehicles for test drives and for immediate purchases.

Musk, 47, described the store wind-down announced on Feb. 28 as a cost-cutting move that enabled Tesla to offer a long-promised $35,000 version of the Model 3 sedan, the automaker’s first mass-market vehicle. The company will continue to offer the car at that price point and will increase the cost of other variants of the sedan. The Model S and Model X also will be made more expensive, and buyers will have a week to place orders before prices rise.

Cash Concern

Barclays analyst Brian Johnson cut his price target for Tesla shares to $192 from $210 on March 5, citing concern that the company’s ability to sell electric cars at high volumes with strong margins would be undermined by the store closings. He said the sooner-than-expected arrival of a $35,000 Model 3 likely reflected the need to replenish cash after paying off a $920 million convertible bond and added that weak U.S. sales early this year also probably hasn’t helped.

Last week, Tesla announced it had secured as much as $521 million in loans from Chinese banks to build a vehicle and battery factory in the country. It also amended a separate asset-backed credit agreement, increasing how much it can borrow by as much as $700 million.

Tesla also is in talks with top Chinese battery manufacturer Contemporary Amperex Technology Co. Ltd. about supplying its plant, which is being built on the outskirts of Shanghai, people familiar with the matter said.

(Updates with analyst’s comment in the fourth paragraph.)

To contact the reporters on this story: Young-Sam Cho in Hong Kong at ycho2@bloomberg.net;Elisabeth Behrmann in Munich at ebehrmann1@bloomberg.net

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, ;Young-Sam Cho at ycho2@bloomberg.net, David Welch

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