EDINBURGH — Tesla boss Elon Musk appears to be giving investors the two-fingered salute with increasing frequency. He has been annoying the Securities Exchange Commission with Tweets designed to mislead investors – even though he and Tesla have each had to cough up $20m for Tweets deemed to be securities fraud. Now Tesla has started closing stores, even though less than two weeks ago the company said a bricks-and-mortar strategy was essential. Another development angering, and worrying investors, is that Tesla is launching new models, and taking deposits, before the Model 3 has a chance to sell. Musk’s shock-jock-style antics have lost him fans among big investors with the power to move stock prices. Analysts have cut stock price targets; at least one big investor has admitted selling off all Tesla shares across all portfolios rather than risking more weird Musk behaviour news that could drive the share price down. BizNews offloaded Tesla from its portfolio in April 2018. – Jackie Cameron
By Dana Hull
(Bloomberg) – Tesla Inc. shares continued a steep sell-off in the wake of Chief Executive Officer Elon Musk’s surprise move to close most of the electric-car maker’s stores and shift to online-only sales.
Many sales personnel first found out about the decision when Tesla published a public blog post Thursday afternoon, said three people familiar with the matter, who asked not to be identified discussing sensitive matters. A Barclays analyst cut his price target on the stock Tuesday, adding to a chorus of concerns raised by some investors also caught off guard.
Tesla declined to comment on the sales shift beyond Thursday’s blog post and an email Musk sent employees later that day. Representatives didn’t immediately respond Tuesday to inquiries about a Chinese media report that said Model 3 sedans are being held up by customs over labeling issues.
The stock has dropped as much as 16% since Thursday, shaving more than $8bn from Tesla’s market capitalisation.
The abrupt move by Musk, 47, shocked Alex Chalekian, the founder and CEO of Lake Avenue Financial in Pasadena, California. The firm, which manages more than $150 million in client assets, sold all of the Tesla stock held for advisory clients on Friday.
Read also: 6 reasons to run from Tesla, and fast! Scary graphs that expose Elon Musk – Nigel Dunn
“This was a total 180-degree turn,” Chalekian, who owns a black Tesla Model S, said in a phone interview Monday. “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.”
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 centres 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 centre in a new geographic area can increase demand. As a result, we have complemented our store strategy with sales facilities and personnel in service centres to more rapidly expand our retail footprint.”
Read also: An annus horribilis for Elon Musk as he cuts staff at Tesla, but he drills on
Tesla has already closed several stores, including one at the International Market Place in Honolulu and another at the Gardens on El Paseo near Palm Springs, California. Calls to those stores now ring through to Tesla call centers in Las Vegas and Fremont, California.
“Much of the bull narrative has rested on Tesla being the next Apple, selling high-volume EVs at premium price point and at high gross margins, in part aided by a unique branded retail experience,” Brian Johnson, a Barclays analyst, wrote in a report Tuesday. That’s been undercut by the store closings, he said, cutting his price target to $192, from $210.
‘Amazon of automotive’
One of the key people involved in implementing the online sales strategy is Sanjay Shah, who has taken on additional responsibilities since his arrival from Amazon.com Inc. last summer, the people said. He joined Tesla as senior vice president of energy operations and continues to oversee that business.
“The bull narrative has not shifted to Tesla becoming the Amazon of automotive,” Barclays’ Johnson wrote. He disagrees, arguing it’s likelier that the company needs to replenish cash after paying off a $920m convertible bond last week and that US sales have been weak in the first two months of the year.
After the full value of US federal tax credits expired at the end of 2018, Tesla has prioritised beginning deliveries of the Model 3 in China and Europe early this year. China ports have suspended customs clearance of the sedan after Shanghai customs found labeling issues on 1,600 of the vehicles, Caixin reported earlier Tuesday, citing a notice from China’s General Administration of Customs.
Cost-cutting
Musk described the winding down of many stores as a cost-cutting move that enables Tesla to offer a long-promised $35,000 version of the Model 3 sedan, the automaker’s first mass-manufactured car. The company said it’s able to reduce prices of all its vehicles by an average of about 6% by shifting sales online and trimming other expenses.
In an email to employees sent roughly three hours after Tesla published its blog post Thursday, Musk said that 78% of Model 3 orders were placed online last year, rather than in stores. He wrote that some jobs will be transitioned to other areas of the business and that “a small number of stores in high-traffic locations will remain as galleries, showcases and Tesla information centres.”
Read also: Musk’s disrespect for SEC a risk for Tesla investors: Old Mutual
“We are not concerned,” Cathie Wood, the CEO of ARK Invest, a fund manager who remains bullish about Tesla, said Monday on Bloomberg Television. While the decision to close stores and go all-online was “abrupt,” she wasn’t as surprised as other investors. “We got the sense something was up because he is still competing against other auto manufacturers who have their costs screwed down, but at some point, his pricing is going to drop below theirs,” she said.
Just days after saying the cheaper Model 3 is now available to order, Musk announced in a series of tweets to his roughly 25m followers that Tesla will unveil the Model Y crossover on March 14, followed by a truck later this year.
Chalekian said those tweets Sunday reaffirmed his decision to sell Tesla stock.
“The Model Y is probably going to eat into Model 3 sales,” he said. “With all of the stuff going on right now, I don’t know if people are going to race to put down a deposit on the Y in the way they did with the 3. But Tesla is using this to raise capital through customer deposits. I feel like Tesla is just buying time at this point.”
