Tesla reverses decision to close physical stores, after realizing they still have to pay the lease

[kuhnertdm]

Sources:

https://www.theverge.com/2019/3/11/18259580/tesla-price-hike-stores-reversal

http://fortune.com/2019/03/08/tesla-close-retail-stores-lawsuit-retail-landlords/

https://www.tesla.com/en_EU/blog/update-tesla-stores-and-pricing?redirect=no

 

Electric car manufacturer Tesla has announced late Sunday night that they are reversing the decision they announced on February 28 to close all their physical stores to help save money to support the new $35,000 Model 3 that they also announced that same day. The original announcement was timed as part of a larger literal-last-day attempt to push their stock price above $359.87 to not have to pay out $920 million to bond holders, in cash (they failed to do so).

 

The new announcement comes as a potential response to possible legal troubles they would be facing by closing stores for which they are currently paying a non-cancellable lease for the property. After they said they were going to close the stores, Robert Taubman, the CEO of Taubman Centers (a company that leases multiple locations that would be closed), said that Tesla “is going to owe a lot of landlords a lot of money.”

 

Tesla themselves have also acknowledged that they can't just close a lot of their stores without facing a lot of legal issues. In a yearly securities filing, they acknowledged that the leases were non-cancellable, and listed them under their "Commitments and Contingencies".

 

In addition, they are increasing prices of all models other than the $35,000 Model 3 by 3%. This was after the February 28 announcement stated that the store closures would enable Tesla to cut car prices across the board by 6%.

[Ben Bnazzi]

Interesting. Thank you for sharing.

[myselfolli]

I never really thought this was going to fly anyways, no big suprise really.

 

Thank you for sharing anyways!

[Arika]

It seems no one at the company thinks about anything before making a decision or announcement

[ZestyJalapeno]

Are non-cancellable lease agreements in place for ALL their stores? Seems weird 

[Dedayog]

11 minutes ago, Dogeystyle said:

Are non-cancellable lease agreements in place for ALL their stores? Seems weird 

Almost all commercial leases are non-cancellable.   Especially when a landlord usually only starts making money after the first year or so, due to TI and broker fees, etc.

 

Legal trouble?  That's a stretch, more of a dramatic word choice. They'd just owe on their leases, not be brought to court immediately.

[bcredeur97]

I can never figure out if Tesla is on the brink of something huge or going bankrupt

[kuhnertdm]

2 hours ago, jstudrawa said:

Legal trouble?  That's a stretch, more of a dramatic word choice. They'd just owe on their leases, not be brought to court immediately.

Yeah, I was just mainly repeating what the sources were saying. The potential legal trouble is basically if they were to go through with closing and trying not to pay, which was the intention, as they indicated it was for the purpose of financing the $35,000 Model 3.

[Brooksie359]

3 hours ago, bcredeur97 said:

I can never figure out if Tesla is on the brink of something huge or going bankrupt

I think the answer is both. 

[Bcat00]

Now this is hilarious. When making a huge announcement like closing all their physical stores, wouldn't someone at the top ask their finance department if it was even doable or the type of obligations they have?

Like seriously, this is kinda one of the first questions one should have when leading a big corporation, "Debts and Obligations".

 

 

[dtaflorida]

5 minutes ago, Bcat00 said:

Now this is hilarious. When making a huge announcement like closing all their physical stores, wouldn't someone at the top ask their finance department if it was even doable or the type of obligations they have?

Like seriously, this is kinda one of the first questions one should have when leading a big corporation, "Debts and Obligations".

 

 

Well they're just trying to get their stock prices up to meet their bond requirements or something. Makes me wonder if that has anything to do with tweeting about foreign investment a while back too.

[Real_PhillBert]

Sometimes I feel like Tesla is run by a 16 year old with ADD. 

[Monkey Dust]

Announce first, figure out of it's possible later. Muppets.

[PlayStation 2]

I don't like Tesla not because "muh electric" or some shit like that. I love big ass V8s but I welcome electric cars.

I don't like Tesla because they're ran by fucking idiots who pretend to know how to run a company.

[Techstorm970]

5 hours ago, Brooksie359 said:

I think the answer is both. 

I agree.  Tesla is advancing electric car technology extremely quickly, but is also in financial trouble.  They're literally "going for broke;" they're gonna do as much as they can until they can't do anything.

[porina]

I'm no legal expert but have to wonder if this'll get the SEC knocking on their door, again. 

[Chett_Manly]

2 hours ago, porina said:

I'm no legal expert but have to wonder if this'll get the SEC knocking on their door, again. 

It would only be an issue if they lied about closing the stores in the first place, but there is no reason to think that. They had a plan they announced the plan, they got blow back, and turned it around. 

[kuhnertdm]

11 hours ago, Chett_Manly said:

It would only be an issue if they lied about closing the stores in the first place, but there is no reason to think that. They had a plan they announced the plan, they got blow back, and turned it around. 

Plus, "we're closing our physical stores" doesn't have nearly as strong of an effect on the market as "Tesla shares will soon be worth $420, guaranteed".

 

19 hours ago, dtaflorida said:

Well they're just trying to get their stock prices up to meet their bond requirements or something. Makes me wonder if that has anything to do with tweeting about foreign investment a while back too.

This would certainly explain why the decision was made apparently without considering all the effects it would have on the company. At that point they literally had one day left to pull the price up before they'd lose a third of their on-hand cash, and they were just throwing everything at the wall in the hopes that something sticks so they wouldn't lose all that money.

[dtaflorida]

3 hours ago, kuhnertdm said:

This would certainly explain why the decision was made apparently without considering all the effects it would have on the company. At that point they literally had one day left to pull the price up before they'd lose a third of their on-hand cash, and they were just throwing everything at the wall in the hopes that something sticks so they wouldn't lose all that money.

 

Does the SEC look into this as stock price manipulation? If Elon had been tweeting about closing stores they would have. Loosing that much cash due to stock price below a threshold... great setup for a conspiracy.

[kuhnertdm]

5 hours ago, dtaflorida said:

 

Does the SEC look into this as stock price manipulation? If Elon had been tweeting about closing stores they would have. Loosing that much cash due to stock price below a threshold... great setup for a conspiracy.

It's pretty much certain that Tesla made the store closure announcement to tell everyone "We did something that should make us more profitable, please invest in us". The question is whether or not they knew at the time they would be reversing the decision. In the case of the "going private" lie, they knew for sure that they did not have funding secured when they said they did.

 

Plus, whatever they could possibly get out of Tesla for this particular instance probably isn't worth the legal costs. See my previous post about the severity of the two issues. Should it be considered stock manipulation? Potentially, if they could prove that Tesla intended the whole time to say it and then backtrack. Would it be considered stock manipulation? Probably not.