Patrick T. Fallon/Bloomberg via Getty Images

By his own admission, 2018 was “the most difficult and painful” year of Elon Musk’s career. So far, 2019 does not appear to be much better.

On April 8, 2019, Bloomberg revealed that Tesla had laid off dozens of sales staff from Tesla showrooms in Chicago, Brooklyn, New York and Tampa. The news came a month after Musk wrote an internal email to Tesla employees describing how the electric car firm would shift away from brick-and-mortar stores in favour of online sales.


But are these are the actions of a cash-strapped company struggling to shore up its bottom line, or a visionary firm choosing to shun stores because the majority of its customers prefer to shop online anyway? It's complicated.

Whatever Tesla’s broader strategy, the staff dismissals seem inseparable from the company’s poor first quarter results. Demand for the two-year-old Model 3 sedan has declined: only 63,000 were delivered in the first three months of 2019, compared to 90,966 in the fourth quarter of last year. The decision, says Michael Price, Research Associate at Newcastle University Business School, is a simple financial one: “The dismissals are a means of cutting operating expenditure at a time when Tesla is clearly struggling to service its debt.”

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Tesla had two options, says Paolo Aversa, Senior Lecturer in Strategy at City, University of London: to try and recover ailing sales, or to try and quickly recuperate cash. Evidently, the firm has prioritised the latter: cutting sales staff and reducing retail space are not the actions of a company pushing for larger sales.

To really understand Tesla’s thinking behind the layoffs, however, you need to consider it in the broader context of its newly announced, online-only delivery model. Tesla initially announced, in February that it would close nearly all of its 398 retail stores. A month later, it rolled this back, saying that it would only close half of its stores.


For a company in the automotive industry, an online-model seems counter-intuitive. Visiting a dealership, test-driving a vehicle and bargaining with a wiley salesperson are traditionally seen as part and parcel of the car-buying process.

But the nature of Tesla’s customer base means that the move may make sense. Last year, of the 140,000 Tesla Model 3s sold in 2018, 78 per cent of the sales were made through the website. Tesla also appeals to a deeply unusual user: affluent technology enthusiasts, invested in the Tesla brand and comfortable with buying online – 82 per cent of buyers last year didn’t even take a test drive. For these core devotees, the move is unlikely to affect their interest, just as Tesla's no-advertising model hasn’t hindered its publicity.

Yet, though Tesla began with high-priced cars in order to build the company brand name, its long term goal has always been to release a more affordable model. As Tim Urban pointed out in a gargantuan analysis of Musk’s Neuralink back in 2017, this has remained the aim for all of Musk’s projects: to improve the economic viability, and so accelerate the adoption of, technologies he feels will benefit humanity. In fact, it was this exact reason Musk gave to his employees for the online change: “Shifting all sales online combined with other ongoing cost efficiency will enable us to lower all vehicle prices by about 6 per cent on average, allowing us to achieve the $35,000 Model 3 price point.”

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What is unclear, however, is how consumers that aren’t already Tesla fans will respond to the lack of brick-and-mortar dealerships, particularly in an increasingly crowded market of electric cars. The move seems illogical, says Aversa: “Tesla has portrayed itself as a vendor that is very keen on providing a more transparent, more sustainable, more logical also type of engagement with customers. These tactics, I think, harm the overall image of Tesla, and possibly reduce sales or cast a shadow in a time where the market is providing reliable alternatives.”


Yet, for as long as people buy into Musk, explains Price, Tesla will continue to raise capital. ”The reason they're able to do that is that it's Tesla.” he explains “It creates buzz. So if it was Ford, or GM, or Chrysler, or any other company, they wouldn't be able to behave in this way because they wouldn't be able to raise the capital to fund future capital expenditure.”

But can Tesla continue to ride on Musk’s celebrity forever? When Musk admitted that 2018 had been a hard year, it wiped billions of dollars off the value of the company. As a long term strategy, Aversa is unsure of its effectiveness: “Elon Musk has proven to be an excellent entrepreneur and a mediocre strategist. Connecting the image of your company so strongly to your personal image, and behaving questionably in the public sphere, at a time when support from your investors and stakeholders is key, just doesn't sound too smart to me.”

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