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Home / Business / Tesla Sales Assistance Struggles for Survival Amidst Quarter Change – Tesla, Inc. (NASDAQ: TSLA)

Tesla Sales Assistance Struggles for Survival Amidst Quarter Change – Tesla, Inc. (NASDAQ: TSLA)

Tesla (NASDAQ: TSLA) made waves when it first committed itself to a direct sales model and destroyed the traditional negotiation systems used by almost every major automaker. The started electric car company has spent years promoting the supposed benefits of this alternative strategy. Thus it came as a shock to many – including thousands of their own employees – when Tesla announced in late February that there would be circumcision of almost all its stores. Instead, Tesla will switch all sales online.

Much has changed in the month since the fateful announcement. Tesla soon froze after announcing them, but this has served mainly to add ̵

1; instead of relieving – confusion and inner distress. On March 27, Tesla gave his latest update on the situation. In an email to all employees, CEO Elon Musk stated that the store locations would continue, but far more would be kept open than previously announced. According to Musk, it is now up to all shops and sellers to prove themselves so that they do not get the ax.

While this latest announcement provides some clarity in a cloudy situation, it does little to alleviate the underlying concerns that the first announcement made. In fact, the chaotic approach to store clocks may well prove extremely costly for Tesla in the long run. Improving the demand for their products, increasing competition in each segment of the electric vehicle market, falling federal subsidies and falling margins, put Tesla in an increasingly difficult position. Sales force alienation looks extremely short-sighted – and potentially fatal.

A radical strategic shift (followed by another U-turn)

As recently as January, Tesla was still changing its stores. In the shareholder letter for Q4 2018, the company reworked its commitment to the strategy, and boasts about the number of new placement openings during the year:

"In the fourth quarter, we opened 27 new store and service locations, which resulted in 378 locations worldwide at the end of the quarter. "

Tesla's strategy did not seem to change radically after a few weeks later. In a February 28 blog post, the company announced that it would close almost its stores and change all sales online. According to Tesla, the closures were supposed to lower the prices of all their products, as well as being able to introduce the long-awaited $ 35,000 standard model model 3 sedan:

"Shifting all sales online, combined with other ongoing cost-effectiveness will allow us to Lower all vehicle prices by about 6% on average, so we can achieve the $ 35,000 model 3 price earlier than we expected, and over the next few months, we'll be knocking down many of our stores, with a small number of high-traffic stores remaining like galleries, show windows and Tesla information centers. "

Tesla began to close stores seriously. Dozens were shuttered within the first week, with many more seemingly next in line. Few employees were told about the major strategic change ahead of the announcement.

Many sales personnel reported being "blindsided" by the whole case. Business Insider interviewed several such employees, and found widespread anger and confusion. In fact, many store employees and managers reported that they had a serious breakdown in internal morals. It is hardly surprising, since most of them faced the strong opportunity to get the ax in short order.

The spirit was the unknown far from over to the Tesla settler sales force. In fact, only days after the closures were announced, Tesla once again reversed – albeit temporarily. On March 8, the company announced that it was freezing the closing speed, which gave employees an "opportunity to prove themselves" and to justify not being fired when the closure began again.

Tesla's decision to delay closures appears to have been heavily influenced by the aggressive pushback it received from a number of important landlords. According to the company's latest filing of securities, the total lease obligation is worth $ 1.6 billion, of which $ 1.1 billion is due through 2023. It looks like Tesla had thought it could go away from many of these leases without significant penalties.

Tesla does not expect much repayment from jilted landlords, but it was quickly disabused by the thought when a number of heavy-hitters, including REITs such as the Federal Realty Investment Trust (FRT), cried wrong. Contrary to this unexpected challenge, Tesla clearly convinced that the cautious choice would be to put the restructuring on hold.

Urgent staff to leave

Tesla may have halted its wave of store closures, but it has apparently not caused the reversal of efforts to cut costs. Retailers have experienced steep wage cuts in the wake of the original closure confirmation. Many employees have reported on these cuts, which included the elimination of most performance bonuses, to be little more than a shabby dismissal:

"Sources told Electrek that many employees are going away because of the significant wage decline. Some employees told Electrek that They suspect that Tesla is extending the transitional period and cutting the wages to make them stand out, so they don't have to pay off. "

Instead of just shooting redundant sales staff, Tesla seems to push many to quit. This is preferable, from the perspective of the company, because it frees it from having to pay unemployment and severance pay.

Many dealers are stuck in a state of limbo, facing hard paycheck, uncertain employment prospects, and a boss apparently trying to push them to leave alone, Jalopnik has covered the experiences of a number of these struggles, many of which report that the moral situation has only been rre:

"The stores, even the ones that remain open, are completely dead and without guidance. It was no care given to the employees here. "

Musk has not recognized these battles of morality, in fact, he has doubled in his attitude. On March 27, Musk sent out another e-mail throughout the company, where he again accused salesmen of proving his worth to the organization :

"High frequency visitor stores leading to significant sales will certainly not be closed. It would make no sense to do so, except in rare cases where the rent is absurdly high. Furthermore, Tesla will continue to open stores around the world that meet the above criteria … The above principles also apply to the sales team No one who is a major contributor to the generation is being deleted. "Of course, performance-based compensation can be a great way to adjust sales staff's incentives with the companies they serve. Similarly, unmanaged workers should be released. While this is what Musk's latest email suggests, reality is more complicated. had already been cut which seems to curb the economic acquisitions of top sales to perform to their best. Fresh changes in the compensation system appear to make matters even worse for the Tesla sales staff: [19659023] Such a steep cut will undoubtedly cause many sellers to lead the exit, however, instead of pushing low-performing employees, the move to pool commissions and disproportionately reduce the compensation to the highest revenues will probably drive the best and clearest first. hardly be in Tesla's strategic interest as it tries to sell as many vehicles as possible 659024] A very questionable bet

Tesla seems to be big on its online sales channel and is willing to mostly leave its extensive sales team. It is surprising that this has worried many investors and commentators. Musk has attempted to overcome these fears, claiming that online strategy will not result in lost sales:

"Last year, 78% of all Model 3 orders were placed in-store, and 82% of customers purchased their model 3 without having a test station. "

Although impressive, 78% is far from 100%. As Professor Erik Gordon of the University of Michigan points out, the elimination of the retail channel will not accelerate the pace of sales:

"They will not grow faster by being online only than in online stores and online stores. It is a logical impossibility." 19659027] This adultery has been echoed by a number of Tesla sales staff, including the six interviewed by Jalopnik in early March:

"When asked about 78 percent statistics in particular, the first word of four of the six employees was & "The mouth was" bullshit. "Whether they used the exact word, they rejected all the characters as misleading at best and in complete fabrication at worst.

" For months they had been directed to buy customers Cars even through the Tesla website, even though they sit right next to them in the store. But many buyers place an order on their phones after talking to a seller for several hours or even made several visits. Others come into the store, think about it, and buy online later. In retrospect, several employees suspect this directive as an arrangement to orchestrate their own obsolescence. "

Muska's 78% figure was probably further inflated by the fact that a negligible portion of buyers last year were early adopters – people particularly excited by Tesla and willing to buy with significantly less coaxing than the general public as a whole is likely. [19659033] As Tesla is trying to move to a mass market car company, it has to engage in a less technically-plugged-in and less affluent audience, eliminating stores now based on the construction of a small, idiosyncratic subset of consumers.

Investors Eye View

Tesla's efforts to justify their sudden strategic turn have largely failed to encourage investors, stocks have gone in recent weeks while a number of analysts have been criticizing the apparent chaos that goes through the organization.

For investors, there are good reasons to worry about Tesla's relocation to nearby only stores, reasons that are only exacerbated by the company's bizarre U-turns. Most obviously, closing opportunities will serve to reduce Tesla's visible footprint, as well as hollow out a sales organization; it has spent more than ten years of training and construction. There is talent that is once lost, not easily replaced.

More importantly, the elimination of the retail channel will limit Tesla's addressable market. Surely, many Tesla owners bought their cars online and without test drives, but these were significantly richer, more tech-savvy individuals than the average new car buyer. Even under the best possible conditions, Tesla still sold 22% of its vehicles through brick and mortar.

There is little logical reason why a company is struggling to defend an aggressive growth story to close an important sales channel, except for an attempt to preserve cash. This seems to be what is happening at Tesla right now. In fact, even some of the company's most sensible boosters see growing signs of cash issues. For example, Electrek's Fred Lambert had this:

"After several strange moves in the quarter, I believe that Tesla is under a fairly serious cash cream – probably partly due to higher than expected costs of bringing Model 3 to Europe and China." 19659040] Tesla is clearly under increasing operational pressure. It has completed several rounds of layoffs, and repeatedly cutting prices across all its products in an attempt to move metal. Closing shops can contribute to this work in the short term, but it is likely that it will come at a long-term cost. Without a dealer network, Tesla's stores represented almost the only way consumers could physically interact with the product before making a purchase decision.

To save costs today, Tesla runs the risk of ending a significant fluctuation in the potential market – and

Enlightenment: I am / we are short TSLA. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.

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