Elon Musk adds to the confusion over Tesla’s retail strategy

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Tesla boss Elon Musk has flip-flopped again on the EV maker's strategy concerning its retail outlets. In an earnings call made to financial analysts last week, Musk said that he wants to open more service centers, Bloomberg reports. Tesla originally eschewed the traditional dealership model, instead opting for factory-owned stores, which then ran afoul of franchise laws in those U.S. states that prohibit such vertical integration of sales. Then, in February, Musk announced that it would be closing most of its retail outlets, switching to an online sales model. Just 10 days later, Musk changed his mind, saying that fewer than half of the stores would close. Today almost all of the Tesla outlets have remained in business.

The Tesla CEO still thinks retail outlets, by themselves, are not essential. “They aren’t needed; they’re like an accelerant,” he said on the conference call, and they work best as part of a Tesla ecosystem. Musk said that demand for Tesla vehicles is strongest in areas that have both charging stations and service centers and where the company can offer affordable prices and attractive financing. Presumably, the last two factors are affected by the cost of running retail stores.

“And any place where those four things are true, our sales are great,” Musk said. “So we’re rolling out service centers like crazy. Service centers are the key to sales, not the retail location.”

Some analysts are mystified that Musk wants to add service centers after he said last winter that closing factory-owned outlets would save the company money. Tesla losses were worse than expected in the last financial quarter, leading to drops in stock prices and shareholder confidence.

While Musk may be pitching the service centers as a key to retail sales, he may be missing an opportunity to shore up shareholders' faith. In the world of traditional car dealerships, service (including regular maintenance, repair, and parts) is a major source of revenue and profits. When consumers know about invoice prices and dealer holdbacks, new car sales often don't make a lot of money for car dealers. Used cars and service do. Since the existing fleet of used Teslas is rather small, expanding service centers is one way Musk can increase Tesla's profitability.