Tesla Inc said on Thursday it would not profit from its first quarter, as it’s offering a $35,000 version of its Model 3 sedan. Its global sales would also be online to allow an increase in demand and cut overhead costs for the electric vehicle maker.
Chief executive Elon Musk has warned of profits during a conference call with some members of the media and contrasted with Tesla’s statements last month that it was expecting a smaller net profit in the first quarter.
Shares of Tesla dropped 3.4 percent after hours. Investors have addressed concerns over whether Tesla would be able to ascertain profit margins through cost cutting e.g layoffs as it lowers prices of its newest vehicle.
The price fall could increase concerns for analysts that demand higher-priced versions of the Model 3. Elazar Advisors’ Chaim Siegel said that Tesla wants to drum up demand and that there had been a slowdown in the US as the tax credits slipped. There will be more tax credit hits later in the year too so Tesla is trying to be proactive.
Musk had always mentioned that his strategy for Tesla was to build higher-priced cars – the Model S and X – whose success would ultimately usher in a $35,000 mass-market car, followed by an SUV, the Model Y, which is currently in development. But customers who reserved the Model 3 at that lower price have waited nearly three years since Musk first promised it.
An online-only sales strategy, along with other changes, would allow vehicle prices to drop by about 6 percent on average, Tesla said in a blog on its website. Over the course of a couple months, Tesla will wind down a lot of its stores, while investing in its service system, it said.
Online-only sales represent a shift for the company that has prided itself on its boutique retail stores. In June 2017, Musk promised to increase the number of stores, saying they hadn’t yet started the ground work.
As of the fourth quarter, Tesla said it recently opened 27 new locations, bringing its total of stores and service centres to 378.
Thursday was the third time this year that Tesla lowered the price on the Model 3, which recently started at $42,900. The new $35,000 version runs at a high speed of 130 miles per hour (209 km per hour) and can go from zero to 60 mph in 5.6 seconds, Tesla said. For $2,000 more, Tesla offers a version with a range of 240 miles (386 km) and a top speed of 140 mph.
A $35,000 Model 3 is a major blow for Tesla sales during a period of major challenges, including deliveries of the Model 3 to Europe and China and construction of a factory in Shanghai.
As part of cost-cutting efforts, Tesla last month lowered its full-time headcount by 7 percent, following a similar cut of 9 percent to its workforce in June 2018.
