Tesla to Reduce Sales Outlets in China’s First Tier Cities

CBN reported that Tesla intends to reduce the number of sales outlets in malls in China’s first tier cities. Instead, the company plans to build more outlets in the form of traditional 4S stores in the typical automobile business districts to improve its product exhibition and after-sales service.

Source say Tesla is to reduce the number of its experience stores in Shanghai from 19 to about 10. There are several reasons behind the move. First, Tesla now has high brand awareness, so it no longer requires the high traffic of malls or other heavily foot-trafficked locations, thereby reducing the company’s rental costs. Second, as sales volume grows, more after-sales centers need to be built.

“Tesla plans to build 1 or 2 outlets similar to 4S stores in each district of Shanghai. The company is looking for venues near the the city’s automobile business district, and plans to negotiate with many investors from traditional automobile dealers with the intention of renting their venues. The front exhibition hall will be for experience and sales while the back venue will be for maintenance,” said a person familiar with the matter.

These venues may seem like 4S car dealers, but they are, in fact, newly built outlets and will be directly managed by Tesla. In addition, these outlets have no construction and delivery function. Taking Shanghai as an example, car delivery, finance, licensing and car owner training are still conducted in the delivery center of Waigaoqiao. Centralized delivery can reduce costs, and facilitate the management of service processes and quality.

Tesla is the pioneer of automobile direct sales. It splits the display, sales, delivery and after-sales, builds experience sales outlets, experience centers, delivery centers and after-sales centers in cities, and realizes greater sales by taking advantage of the high level of foot traffic in malls and supermarkets. However, with higher brand awareness and larger sales volume, Tesla has started to adjust its strategy.

China’s new car-making manufacturers are actively seizing the stores in malls and supermarkets, leading to a rise in rental costs of some malls and supermarkets.

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One person from Tesla China spoke about the rise in costs, “The stores in malls and supermarkets used to be rented to highly competitive industries such as catering and clothing sectors. At that time, rent wasn’t too high. Then a large number of automobile companies came in with a lot of money and that helped raise the overall rent.”

This source said that Tesla sometimes locates it’s sales outlets in a different address, but other brands still follow suit, and their rent is even higher than Tesla’s.