Don’t be quite so fooled into thinking it’s doing it out of the goodness of its heart. This is a cold, hard, business decision. Live by the lease, die by the lease. All that and more on The Morning Shift for March 11, 2019.
1st Gear: Tesla Rolls Back Plan to Cut Stores After Landlords Say It’s Still on the Hook For Existing Leases
Last week, Tesla boldly announced not only would it be switching to all online sales, it would be trimming back its stores and staffing to match the lower in-person requirements.
This was a strong announcement to the media, but a shock to Tesla employees, who heard the news when you did.
Today, Tesla announced in a press release that it’s dialing back that plan, dropping only locations it would have dropped anyway. Also, that it won’t be passing along the savings to you, as the saying goes. Prices are going up:
Over the past two weeks we have been closely evaluating every single Tesla retail location, and we have decided to keep significantly more stores open than previously announced as we continue to evaluate them over the course of several months. When we recently closed 10% of sales locations, we selected stores that didn’t invite the natural foot traffic our stores have always been designed for. These are stores that we would have closed anyway, even if in-store sales made up our entire sales model. A few stores in high visibility locations that were closed due to low throughput will be reopened, but with a smaller Tesla crew. In addition, there are another 20% of locations that are under review, and depending on their effectiveness over the next few months, some will be closed and some will remain open.
As a result of keeping significantly more stores open, Tesla will need to raise vehicle prices by about 3% on average worldwide. In other words, we will only close about half as many stores, but the cost savings are therefore only about half.
Did the company switch things up so it could do right by its employees? Not by the looks of it, as the Wall Street Journal points out.
I’ll quote from the article itself, but the point is that Tesla has a lot tied up in non-cancellable leases, and any break of them could end up in court:
The electric car maker has offered few details about which of its 106 stores and galleries in 26 states it plans to close. Even many shopping center landlords say they have heard nothing from the company about whether their Tesla store will be shut down, according to real-estate brokers and landlords.
What is clearer is how much Tesla owes in future rent payments. The company has total lease obligations of $1.6 billion, with $1.1 billion due between this year and 2023, according to its securities filings. The payments include leases for stores, galleries and other uses including real estate abroad.
In a February securities filing, Tesla said it has “various non-cancellable operating lease agreements,” and any effort by the company to terminate those leases could result in legal battles. Landlords could seek a court injunction to prevent Tesla from closing stores before the lease expiration.
Search Tesla’s press release and you’ll find no mention of “lease” or “landlord.” Not a big surprise there.
All of this just reminds me of when Porsche tried something similar back in the 1980s and got threatened with a lawsuit to the tune of $1 billion. The more things change...
It’s looking like BMW’s cutting plans to export EVs from China as trade talks are getting more heated, as Automotive News China reports:
BMW’s ambitions to establish China as a hub for exporting electric vehicles are in limbo because of uncertainty over potential trade tariffs between China and the United States, company executives told Reuters.
BMW has factories in Europe, China and the United States and plans to establish China, the world’s largest market for EVs, as an export hub for such vehicles, given its lower labor costs and support for zero-emission cars and light trucks.
But Washington and Beijing are locked in a trade dispute, with U.S. President Donald Trump threatening to increase tariffs to 25 percent from 10 percent on $200 billion of Chinese goods if the two sides can’t reach a deal.
BMW is an odd company in terms of exports. It’s a distinctly German brand, but it’s the top auto exporter from the U.S. by value.
The swollen Kirby that is Renault-Nissan-Mitsubishi set up a big new board meeting and Carlos Ghosn wanted in. Emphasis on wanted, as noted in a Bloomberg wire report today:
Carlos Ghosn sought and failed to join a board meeting at Nissan Motor Co. that could change the course of its three-way alliance with Renault SA and Mitsubishi Motors Corp.
The automakers are planning to form a single board for the alliance that will oversee its governance and operations, Renault said in a statement Monday, confirming earlier media reports. As architect of the structure and former chairman of all three companies, Ghosn was seeking to join Nissan’s meeting Tuesday to explain himself personally to fellow directors.
But the Tokyo District Court rejected his request, saying it would violate terms of his bail forbidding him from contacting people involved in the charges against him for allegedly falsifying financial records and breach of trust.
Bloomberg neither confirmed nor denied if Ghosn also tried to get into the meeting under a disguise, perhaps as a janitor or as an office plant.
It’s not exactly clear what Fiat-Chrysler wants to be these days, but whatever its future entails, FCA wants Maserati in it, for some reason. Reuters has the story:
“We have a strong independent future, but if there is a partnership, a relationship or a merger which strengthens that future I will look at that,” Manley told reporters at the Geneva car show.
Asked whether he would consider selling Maserati to China’s Geely Automobile Holdings, as suggested by recent media reports, Manley said: “Maserati is one of our really beautiful brands and it has an incredibly bright future... No.”
FCA is often cited as a possible merger candidate. Bloomberg said this week that the Italian-American carmaker was attractive to France’s PSA Group given its exposure to the U.S. market and its popular Jeep brand.
To all the beautiful brands out there... FCA loves you, and cherishes your bright future.
The Mahindra Roxor is a wonderful little not-a-Jeep, but it’s here in part because it’s explicitly not for road use. It’s a dedicated offroader, not legal on highways and byways.
But it may be getting different Mahindras to do the deed, as the Detroit News reports:
The off-road vehicles they build here aren’t street-legal. But they’re selling much faster than the Mumbai-based company expected, a testament to Roxor’s rugged Jeep-like demeanor and the company’s ability to offer the units in a wide array of colors.
The Indian automaker is also considering entering the U.S. market with a small minivan one day, said Pawan Goenka, managing director of parent Mahindra and Mahindra Ltd, in an interview with The Detroit News.
One thing is certain, he added: Mahindra is striking a chord in the United States with its small footprint, making it more likely the lucrative market is sure to attract a larger presence from India’s largest producer of SUVs in the future.
DetNews goes on to note that the next stepping stone for Mahindra would be if it wins the contract for the next USPS mail truck, but road car sales would never be super soon one way or another. Bummer. Mahindras are neat.
Today’s news reiterates how hard it is to break the traditional dealer system in the United States. So how long do you think it has to last until we’re buying all our cars through the Sears catalog, er, I mean Amazon. Five years? Ten years? Once everything’s EV? Never?