The chaos observed at Tesla at the start of 2019 is getting worse. Despite the company's hastily disclosed decision to shut down all of its retail stores, it now appears as though landlords haven’t been notified of the company's intentions to close, nor are they willing to "give the company an easy way out of its leases", according to the WSJ.
Tesla currently owes lease obligations of $1.6 billion, with $1.1 billion due between now and 2023. This includes payments for store leases, galleries and real estate abroad. Robert Taubman, chief executive officer of Taubman Centers said at the Citi 2019 Global Property CEO conference, adding that "Tesla is a company with a viable balance sheet that is going to owe a lot of landlords a lot of money.”
The decision to close down all of its retail stores and move to an online-only sales model surprised many of the company's employees and investors. For instance, we pointed out one investor who sold his shares in the company as a result of being blindsided by the news.
“This was a total 180-degree turn. Tesla had been talking about expanding stores, and all of a sudden they are closing them. To me, this signals a huge financial concern and a possible cash-flow issue for Tesla,” former investor in Tesla, Alex Chalekian, said.
It pains me to say this, since I really love the company, but we have sold our position in #Tesla for our advisory clients. I believe that the decision to close retail stores is a bad one and points to the weakness in sales and financial strength of the company. $TSLA— Alex Chalekian (@AlexChalekian) March 1, 2019
Members of the media were equally as stunned.
This is not an adjustment to strategy. This is a total reversal. They had a retail plan 2 months ago and concluded they had to tear the whole thing up and come up with a radical new plan. What does that say about the company? @elonmusk @tesla https://t.co/3k04m0pW5i— Neal Boudette (@nealboudette) March 1, 2019
Tesla was "negotiating and signing leases" as recently as last month, according to executives at Taubman and Macerich. Many mall and retail shopping leases run between 5 to 10 years and Tesla has admitted in its SEC filings that some of these are non-cancellable. Efforts to get out of these leases could result in legal battles and court challenges. Leases may be able to be canceled in the event a bankruptcy or persistent vacancies at the shopping center.
Don Wood, CEO at Federal Realty Investment Trust concluded: “The bottom line is, this is a business of contracts.”
Perhaps Tesla knows this, because additional unconfirmed rumors are already starting to circulate on social media.
Update: $TSLA is now back pedalling on recent move to close stores. Now telling sales agents to go back to the way it was a month ago and reinstating commissions and bonus strutcture. It appears absolutely no one but Elon was on board with this, pun is absolutely intended.$TSLAQ— StockPriceBro AKA SECBro (@NotStockPricBro) March 8, 2019