Does a price hike suggest trouble ahead for Tesla?

By Ellen Daniel

After announcing at the end of last month that it would be closing all of its retail stores, Tesla has made a u-turn.

The electric car giant sparked controversy after announcing that its vehicles would soon be exclusively available to buy online, but has now announced that large-scale closures are not on the cards.

Although this will be welcome news for those employed in Tesla showrooms around the world, the move does not come without compromises elsewhere. Store closures would have freed up money to allow for a 6% reduction in price for Tesla models, but as this is no longer going ahead, prices will instead rise by 3%.

The already expensive Model 3s, the Model S, and Model X will all increase in price, meaning that £2,400 will be added to the £80,200 Model X SUV, which is already prohibitively expensive for many.

The Tesla price increase is despite Elon Musk saying in a letter to employees in January that “our products are still too expensive for most people”.

The only car that will not rise in price is Tesla’s cheapest product, the $35,000 Model 3.

This is the latest in a series of money-generating tactics by the company. Tesla recently closed 10% of sales locations, and the future of the rest of its retail stores remains up in the air, with a statement from the company saying “we have been closely evaluating every single Tesla retail location, and we have decided to keep significantly more stores open than previously announced as we continue to evaluate them over the course of several months.”

In January, the company announced that it would be reducing its workforce by 7%, after eliminating 4,100 jobs in June.

In a letter to Tesla employees, Elon Musk said that 2018 had been the “most challenging” year in the company’s history and as a result cuts were necessary.

Tesla price increase: is the company in trouble?

The Tesla price increase appears to point to a company in trouble, and 2018 was certainly the year that Tesla hit the headlines for all the wrong reasons.

This was largely due to the actions of CEO and founder Elon Musk. Musk has been followed by controversy over the past year, after tweeting that he planned to take the company private in August, prompting an investigation by the Securities and Exchange Commission.

Along with failing to meet its Model 3 production targets, there have also been several safety concerns over Tesla’s autopilot feature, after reports of fatal crashes and the recall of 100,000 Model S cars over power steering issues.

This has prompted some to predict that the company may be heading for financial difficulty. According to the BBC, the company was $10bn in debt at the end of 2017, and its shares fell by about a quarter between September and May last year.

However, it may be too soon to write off the company just yet. Although its most recent quarterly earnings fell short of analysts’ earnings expectations, the company made a profit for the first time, reporting a 4% profit.

Although Musk himself said that this was “small by most standards”, the company delivered almost as many cars in the last quarter alone as it did in the whole of 2017.

Tesla’s Model 3 was the best-selling electric vehicle in the world in 2018, suggesting that focusing on cheaper models may be the way forward for the company.

Although this may not be the financial results the company hoped for, it may suggest that Tesla has managed to survive the PR nightmare it faced last year.

“A smart move”

Richard Laermer, CEO of media company RLM Public Relations, believes that the Tesla price increase is a sign that the company has moved on from its “bad situations” from 2018:

“Shutting stores would be a sign of weakness. Musk is anything but weak. The 3%  is a token gesture—a smart idea. Musk is changing the world, a little at a time. Everything he does has major effect on so much of our future. Good for him. I applaud his decision. It signals he’s calmed down since the bad situations he put himself into during 2018.”

Michael Driehorst,Digital Media Editor for Washington, DC at  SmartBrief.com believes that the brand could be strengthened by the change of tactics and the Tesla price increase:

“From a marketing standpoint, Tesla’s move to “backtrack” on the closing of its stores to about half is a smart move at a relatively minimal price pain point of 3%. It’s a move that should strengthen its brand perception for potential owners by maintaining the opportunity for a personal, custom approach during much of the sales process.

“The move also should help turnaround the customer service issues Elon Musk’s company has faced in recent months, by keeping more of its “touch points” in person, rather than solely online.

“While people do crave the convenience of things like online ordering, we still want to feel valued, and the best way to do that is through an in-person service connection.”