Tesla’s Brick-and-Mortar U-Turn

Tesla has provided consumers with a wild ride over the past three weeks, even by Tesla standards. On February 28, Elon Musk, Tesla’s Chief Executive, announced that the company would be closing all of its dealerships as part of a cost-cutting move. That decision lasted 10 short days – Tesla reversed course and stated that they would re-open many of their outlets in a tweet on March 10th.

A couple issues jump immediately to the fore:

• Tesla realized that word-of-mouth referrals from existing Tesla owners alone may not be adequate to drive new customer traffic. While Tesla has benefited from very positive press (with an unprecedented number of consumers putting four-figure deposits down to reserve a car) that momentum will not last forever.
• Many of Tesla’s brick-and-mortar leases are located in high-end, high-rent shopping areas – not the norm in the auto industry.

After their hasty decision, Tesla may have discovered that announcing store closures does not automatically mean that they are freed from paying rent. Tesla reports having $1.6 Billion in operating lease obligations, with $1.1 Billion due by 2023.

Suffice it to say, it will interesting to follow their twists and turns over the coming months.