Tesla Still Owes $1.6 Billion in Leases for Closing Stores: Report
Not so fast, Elon.
In a recent cost-savings move, electric automaker Tesla looks to transition all of its vehicles sales to online-only. As a result, the company will be closing the majority of its retail and gallery locations—a transition which it quickly began within days of the announcement, reportedly with little or no warning to impacted employees. According to the Wall Street Journal, one small detail may have been missed: many of those retail stores have existing leases.
According to recent SEC filings, Tesla has a total of $1.6 billion in "non-cancellable operating lease agreements" for its galleries, retail stores, and other properties. $1.1 billion of said obligations are to be paid out between 2019 and 2023. Should Tesla choose to break said leases, property owners may choose to pursue legal options to reclaim lost funds.
Robert Taubman is the CEO of Taubman Centers Inc., a property management firm which provides leases to eight of the 106 Tesla locations across the United States. WSJ quoted Taubman as saying that Tesla “is a company with a viable balance sheet that is going to owe a lot of landlords a lot of money.”
By closing its retail stores, Tesla hopes to shave six percent off the price of its vehicles. The automaker has been eyeing cost-cutting measures in order to make its quest for the $35,000 Model 3 viable for long-term profits. Tesla also reworked its Autopilot menu in order to promote purchases of its "Full Self-Driving" suite, an option which was previously taken off the ordering menu due to confusion.
Tesla's retail stores and galleries have proven to mimic expensive billboards. Despite some states not permitting direct-to-consumer sales, Tesla says that online orders made up 78 percent of all total purchases. Furthermore, 82 percent of Model 3 owners purchased their vehicles without even test driving them. If Tesla is able to close its retail stores and continue its online ordering presence, the automaker may very well be making a sustainable move, so as long as it can also break its adjoining property leases.