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Tesla’s Decision to Close Dealerships Is No Surprise in Age of Online Shopping

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  March 5th, 2019  By Anne Dennon

From prescription glasses to mattresses, big-ticket items sold online have created some of the most iconic market disruptions in recent history. Tesla has based its business on disruption, and now consolidates that forward-pushing identity by moving all sales online, as Consumer Reports and others reported last week. Certain locations will remain open as showrooms, but the bulk of its 129 stores will close.

March 1, 2019 – Eatonville, Florida, United States – The Tesla dealership in Eatonville, Florida is seen on March 1, 2019, the day after Tesla announced that it was closing its retail stores as a cost-cutting measure, in a shift to on-line only sales.
(Photo by Paul Hennessy/NurPhoto via Getty Images)

It’s tough to imagine legacy car brands getting away with such a bold move, but perhaps Tesla can. Tech-savvy early adopters have been Tesla’s target market from the beginning. Will those comfortable with ordering this morning’s razors and this evening’s dinner online, who get produce delivered to their doorstep without needing to first prod every apple, be surprised by an online-only car buying experience?

Like the company’s push for commercial space travel, Tesla’s migration online is just a sign of the times. According to the Pew Research Center, over 75% of Americans are online every day. Among younger demographics, replace “every day” with “almost constantly.” And according to Statista, a third of internet users make one or more online purchases per month. Now one of those purchases can be an electric car.

And as for the age-old expectation that you try before you buy, Tesla wants you to try after you buy. To offset the sense of risk that comes with purchasing a luxury car without so much as sniffing the leather, Tesla has expanded its return policy. If you purchase a Tesla without taking a test drive, you can drive your new electric vehicle for as long as a week, then bring it back to a service location. There’s a limit for miles driven during those seven days, but it feels like a dare: an odometer reading below 1,000 miles.

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14 February 2019, Hessen, Frankfurt/Main: Tesla Model 3 are located in a Tesla Service Center in Frankfurt. Photo: Silas Stein/dpa (Photo by Silas Stein/picture alliance via Getty Images)

Like Casper mattress’ 100-night trial, the idea is you will be so enamored with your Tesla, you won’t want to return it. And with the promise of reduced prices on Tesla models, keeping it might be easier to rationalize. The upshot of closing physical stores is that Tesla models will come with smaller price tags — 6% less on average, according to the company. Until last week, Tesla’s mass-market sedan, the Model 3, started at $42,900. It now starts at $35,000—less than its main competition in the entry-level luxury vehicle market, the $40,000 BMW 3 Series and the $41,000 Mercedes C Class.

Reduced cost is a fundamental draw of direct-to-consumer brands, and CEO Elon Musk has chased lowering the price of the Model 3 for years. The Associated Press reported that Musk said closing storefronts was the only way to make it a reality: “It is excruciatingly difficult to make this car for $35,000 and be financially sustainable.”

Another draw of direct-to-consumer strategies: Ease of purchasing. Musk boasted on Twitter last week that (if you’re in North America) you can buy a Tesla on your phone in about a minute.

To make the experience of owning a Tesla as streamlined as buying one, the company has announced a series of infrastructure upgrades. More supercharging stations for faster top-offs and a significant uptick in service technicians aim to move Tesla from mall oddity to highway staple. The first step to achieving this vision, it seems, is simply leaving the mall.

Editor’s note: On Sunday, March 10, 2019, Tesla announced that after two weeks of evaluation, the company decided to keep “significantly more stores” open than originally announced, leading to a proportional price hike – the just-lowered car prices would be raised by around 3%. However, the company said its new Model 3 would still cost $35,000.

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