Whoops, Reverse Course! Tesla Backtracks on Price Cuts And Store Closures

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Those announced changes at Tesla – forget it, back as you were. The price cuts and store closures aren’t going to be happening. It’s possible to look at this in two markedly different ways. One is that this is evidence of the remarkable flexibility of an entrepreneurial company. The very reason why the young and the new can dance rings around the industry dinosaurs. The other that this is evidence of a young and new company doing something damn foolish then realising. You know, evidence that those committees might have a value at times.

Tesla will raise the price of its vehicles after going back on a recent decision to close most of its stores. The electric car maker said in a statement late Sunday that prices for most models worldwide would go up by about 3% after it decided to “keep significantly more stores open than previously announced.”
Tesla (TSLA) had said less than two weeks ago that it would begin shutting most of its stores in a cost-cutting move designed to help reduce the price of its bestselling vehicle, the Model 3, to as low as $35,000.

As has been pointed out the price cuts never really did make sense:

Not so fast. In typical Elon fashion, this was just a garnish on a crap sandwich: in addition to the Model 3 announcement Tesla said, oh-by-the-way-we’re-closing-all-our-sales-outlets-and-laying-off-thousands-and-cutting-prices-6-percent-bye. This is hardly what you would expect to see from a demand constrained growth company. In typically weasely Tesla fashion, the company said that the closing of sales outlets cut costs and allowed it to cut prices. Uhm, that’s not the way it works.

The price cut is particularly telling. This wreaks of a company that needs to generate cash in a hurry (and is hence willing to burn some goodwill), and has an overhang of inventory on its hands. This price cut has also infuriated recent buyers. And the future effects may be quite damaging: people may well hold off buying, in anticipation of buying cheaper later. The Wall Street Journal said that Tesla is going into “uncharted territory” by closing its showrooms. Not really: bankruptcy is pretty well-charted.

Even if you do cut prices you do so at the low end of the range, not the top. Because profits are made by those top end models with all their nice additions. The bare bones model never really does make a profit with anything – that’s why every salesman on the planet is so desperate to upsell.

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Still, it’s all been reversed:

Tesla has reversed its move to close stores, the company announced in a blog post. To keep those stores open, the company says it will raise the prices of Tesla vehicles by 3 percent worldwide on March 18, except for the $35,000 Model 3, which will remain the same price. The more expensive Model 3s, the Model S, and Model X will all increase in price. The choice to keep more stores open came after a two-week-long evaluation of “every single Tesla retail location,” according to the blog post.

So, what do we ascribe this to? The agility of a bureaucracy lite organisation in reacting to error? Or the propensity for an experience lite organisation to commit error?