By on March 5, 2019

On Thursday, Tesla announced it will finally begin delivering the Model 3’s long-awaited base trim to the public through direct online sales. By eliminating storefronts, the automaker believes it can reduce costs — helping to get that pesky profit situation under control.

Unfortunately, reports have emerged that claim those employees had no idea their jobs were on the line. Meanwhile, the company’s share price took a hit in the wake of the announcement, causing its stock to drop significantly. Since last Thursday, more than $8 billion disappeared from Tesla’s market capitalization. 

Elon Musk described the store closings as a necessary cost-cutting measure to ensure it could offer the $35,000 version of the Model 3. The company also explained it would be able to reduce prices of all its vehicles by an average of 6 percent by shifting sales online, though Musk admitted a few high-traffic stores would remain open as product showrooms.

According to Bloomberg, that was a shock to many. At least three Tesla employees told the outlet they first heard about the probable layoffs when the automaker published a public blog post Thursday afternoon. The situation was made all the more confusing by the fact Tesla spent considerable time and resources attempting to expand its physical dealer network over the last two years. Prior to the announcement, Tesla had begun training employees to sell solar systems and energy storage solutions.

From Bloomberg:

Until last week, Tesla’s store strategy seemed to be one of expansion. The Palo Alto, California-based company opened 27 new retail and service centers last quarter, resulting in 378 locations worldwide, according to its letter to shareholders. It was the most openings for a quarter since mid-2017.

Tesla also suggested a brick-and-mortar retail strategy was important in its annual report filed Feb. 19, just nine days before Musk announced the pivot to online sales.

“Our Tesla stores and galleries are highly visible, premium outlets in major metropolitan markets, some of which combine retail sales and service,” Tesla said in its 10-K filing. “Opening a service center in a new geographic area can increase demand. As a result, we have complemented our store strategy with sales facilities and personnel in service centers to more rapidly expand our retail footprint.”

That doesn’t mesh, making some investors nervous. Alex Chalekian, founder and CEO of Lake Avenue Financial, which manages more than $150 million in client assets, said his company sold all Tesla stock held for advisory clients on Friday.

“This was a total 180-degree turn,” Chalekian, explained. “Tesla had been talking about expanding stores, and all of a sudden, they are closing them. To me, this signals a huge financial concern and a possible cash-flow issue for Tesla.”

[Image: Tesla]


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14 Comments on “Tesla Announced Layoffs to Public Before Telling Employees: Report...”

  • avatar

    Did they also axe HR communications to employees to save costs? “Hello, welcome to Tesla! Be sure to sign up for a Twitter account so you’ll know when we’re downsizing you out of a job.” What a wonderful work environment.

  • avatar

    “necessary cost-cutting measure to ensure it could offer the $35,000 version of the Model 3”

    If you tiny-minded peasants are going to hold Me, Elon Musk, to something I said a long time ago, then there will be consequences!

  • avatar

    Maybe that’s why its a good idea to have dealers so they can take on some of the cost of distribution.

    • 0 avatar

      The dealer franchise system takes away responsibility for raising capital for the construction of dealerships and service centers, but it does not do a thing to reduce either total cost or operational cost, as they collect middle-man money in return for doing this, making for a direct reduction in revenue on sales.

  • avatar

    Muskrat is such a fraud.

  • avatar

    I’ll give Musk credit for jump-starting increased popularity of EVs – but the often-bizarre business lurches and public statements make me wonder about Tesla’s long-term prospects.

  • avatar

    This CNN article mentions that Tesla has $1.6 billion in current leases, most of which is for stores and service centers. Sounds like most of the savings will be personnel costs if the leases run for a significant term. Some clarity would help but that’s not Tesla’s strong suit.

  • avatar

    It’s probably cost effective to send service trucks and techs out to Cat earthmovers and huge John Deere tractors. Not sure it is for hundreds of thousands (eventually millions?) of cars.

  • avatar
    cimarron typeR

    hopefully owners can drive their functional vehicles to service centers rather than sending out ICE trucks to each owners home, that would probably offend some Tesla owners

  • avatar
    Master Baiter

    Companies pretty much have to disclose these types of layoffs publicly before telling employees, as it materially affects the stock price. TSLA is particularly vulnerable to this type of news, as evidenced by the market reaction.

    Nothing to see here, move along now.

  • avatar

    The Shorty Ground Force #SGF on Twitter has gone into amazing detail recounting the cash burn and the many interesting things done at TSLA to keep it going.. While I don’t have any position in that stock and want to see them succeed, it is….fascinating. Who coulda thought that the traditional car companies actually know something ?

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