Coverage: Tesla unveils $35,000 Model 3, to close stores

Tesla Inc. said on Thursday it would not be profitable in the first quarter, as it offered for the first time a $35,000 version of its Model 3 sedan and said its global sales would now be online-only.

Alexandria Sage of Reuters had the news:

Chief Executive Elon Musk’s warning on profit during a conference call with members of the media, which did not include Reuters, contrasted with Tesla’s statements last month that it was expecting a “very small” net profit in the first quarter.

Shares of Tesla fell 3.4 percent after hours. Investors have voiced concerns about whether Tesla would be able to maintain profit margins through cost cutting – such as recent layoffs – as it reduces prices of its newest vehicle.

Still, the price drop could quell concerns from some analysts that demand for the higher-priced versions of the Model 3 was beginning to dry up in the United States, especially after a federal tax credit was cut in half this year.

“Tesla wants to drum up demand,” said Elazar Advisors’ Chaim Siegel. “There was a slowdown in the U.S. as the tax credits dropped. (There are) more tax credit hits later in the year too so they are trying to be proactive.”

Kevin Kelleher of Fortune.com reported that customers can now return a car after seven days or 1,000 miles:

In a move that is perhaps more significant for Tesla customers, the company is closing many of its retail stores worldwide, leaving only a handful of “galleries” in high-traffic locations. Instead, Tesla sales will become “online only,” allowing the company to “lower all vehicle prices by about 6% on average,” Tesla said in a statement.

Tesla’s stock closed official trading up 1.6% at $319.88 a share, before the announcement. Once trading resumed after hours, Tesla shares were down 4% at $306.80 a share following news of the store closings. The company’s statement attempted to put a positive spin on the cost-cutting measure.

“You can now buy a Tesla in North America via your phone in about 1 minute, and that capability will soon be extended worldwide,” Tesla’s statement said. “We are also making it much easier to try out and return a Tesla, so that a test drive prior to purchase isn’t needed. You can now return a car within 7 days or 1,000 miles for a full refund. Quite literally, you could buy a Tesla, drive several hundred miles for a weekend road trip with friends and then return it for free.”

Michael Liedtke and Tom Krisher of the Associated Press reported that the previous cheapest Model 3 was $42,900:

The change announced Thursday will allow the Silicon Valley automaker to begin selling its Model 3 for $35,000 — a price point that Tesla CEO Elon Musk has been striving to reach in order to appeal to more consumers and generate the sales the company needs to survive.

The cheapest Model 3 that could be ordered before Thursday started at $42,900.

To save money, Tesla will close many of its stores, but leave some open as galleries or “information centers” in high-traffic areas. Musk declined to specify how many stores will be closed or how many employees will be laid off. The company has 378 stores and service locations worldwide.

“This is the only way to achieve the savings for this car and be financially sustainable,” Musk told reporters during a conference call. “It is excruciatingly difficult to make this car for $35,000 and be financially sustainable.”