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Tesla says 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 its global sales would now be online-only, steps designed to increase demand and cut overhead costs for the electric vehicle maker.
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 on Thursday fell 3.4 per cent 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.”
Musk has often shared 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 fall by about 6 per cent on average, Tesla said in a blog on its website. Over the next few months, Tesla will wind down "many" of its stores, while investing in its service system, it said.
Online-only sales represent a dramatic shift for the company that has prided itself on its boutique retail stores. In June 2017, Musk pledged to increase the number of stores, saying they had “barely touched the surface” of what was possible.
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 has a top 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. December.