When Tesla announced last month that it was planning to close โmanyโ of its retail outlets around the world in favor of online sales, some industry watchers in China were left scratching their heads.
After all, in the worldโs largest market for new cars, brick-and-mortar car dealerships play several vital roles, including where many first-time car buyers come to learn about driving. Perhaps more than any other major market, dealerships in China are still a place for consumers to come kick the tires, touch upholstery, and get up to speed about the vehicle they are planning to buy.
On March 10, Tesla largely reversed its earlier decision to shutter stores, saying that it would keep many more than originally planned.
But thereโs a catch: To compensate for the less-than-planned cost savings, the company also announced it would pass some of the costs on to consumers, raising vehicle prices globally by around 3% on average, beginning March 18.
In China, Tesla currently runs 40 retail stores and 24 service centers, according to the companyโs website. Now the company says it will retain some retail stores in high-traffic locations, a spokeswoman for the luxury brand in China told TechNode. She declined to provide specifics.
Wei Lanfang, a salesperson at Teslaโs first Shanghai showroom located in the cityโs glitzy Xintiandi shopping district, told TechNode she also wasnโt aware of the details.
โWe donโt know which stores will be closed, but will act in line with companyโs new regulations updated next quarter,โ she said.
Feng Shiming, an automotive analyst with Shanghai Menutor Consulting, stressed the importance of physical stores for auto buyers in China. โRetail stores serve as advertisements, which is important in China to attract customers and keep them informed,โ Feng said.
Yale Zhang, managing director of Shanghai-based auto consultancy Automotive Foresight told TechNode that as a relative newcomer to the Chinese car market, Tesla has the โluxuryโ to cut the number of its outlets in China because, unlike other foreign luxury carmakers, the company wasnโt entangled in a broad network of expensive dealerships. โMany luxury automakers would want to do that, but they couldnโt,โ said Zhang.
Even if other auto brands say that online ordering of their vehicles is possible in China, it was all โfake,โ added Zhang. โIn the end, they have to go through their dealers,โ he said.
โI honestly donโt think [Tesla] need [the stores],โ he added. โOne per city is enough. Then they can put the money to building out their service network.โ
While some of the storefronts in China have been spared, itโs unclear how the 3% price hike will affect Teslaโs performance in the country.
Recent events suggest that, like auto buyers elsewhere, Chinese buyers are sensitive to price fluctuations. After slashing prices across its Chinese range on March 1, Tesla faced anger from earlier customers who had paid the higher prices and wanted compensation.
Wei, the Shanghai salesperson, said that the company had yet to reach a resolution with customers seeking price-matching compensation and that there had been an increased number of buyers coming to the showroom beginning last week.
Teslaโs China revenues declined 13.3% year-on-year in 2018. The US-based electric vehicle manufacturer has secured a loan for up to RMB 3.5 billion ($521 million) from Chinese lenders to fund its Shanghai plant, which is scheduled to start producing its Model 3 vehicles by the end of 2019.
With contributions from Colum Murphy.
