Tesla Reverses Decision To Close All Of Its Stores, Increases Vehicle Prices

Kenny Grant
March 16, 2019

The renewed public battle between Tesla's chief executive and the SEC adds pressure on Musk, the public face of Tesla, who is struggling to make the company profitable after cutting the price of its Model 3 sedan to $35,000.

This abrupt pricing reversal follows reports out of China according to which outraged Tesla owners were protesting the lower prices.

On February 28, Tesla lowered the prices of its vehicles and Autopilot, while shifting some Autopilot features into an upgrade package. Tesla paid for the purchase with about 50,000 previously authorized shares. So Tesla is going to close about half as many stores so the cost savings are only about half.

In order to keep more stores open, Tesla will have to raise its vehicle prices by about 3% on average worldwide.

Legal experts have said the SEC could now pursue multiple avenues, including a higher fine, imposing further restrictions on Musk's activities or removing him from Tesla's board or helm.

Gartner analyst Michael Ramsey called the move "startling" and said it undermines the credibility of Musk and Tesla's management.

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"Over the past two weeks, we have been evaluating our retail locations and made a decision to keep more stores than previously anticipated". Instead, shares finished the Monday down more than 3 percent.

The top USA securities regulator received permission from a federal judge on Tuesday to respond to Tesla Inc Chief Executive Elon Musk's arguments that his Twitter post about the electric vehicle maker's production volume did not violate his recent fraud settlement.

Prices of the Model 3 vary, but the company recently began producing a $35,000 standard model.

Potential Tesla owners will have a week to place their order before prices rise, so current prices are valid until March 18th.

"This is the only way to achieve the savings for this auto and be financially sustainable", Musk told reporters during a conference call announcing the change. In a shareholder's letter from Q4 of 2018, Musk says the company would be gearing up for Model Y production and would reach volume production "by the end of 2020, most likely at Gigafactory 1".

At the time, Musk also walked back the company's guidance that it would be profitable in all future quarters, saying it would post a loss in the first quarter of this year.

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