Tesla Motors Inc (TSLA) stock has been in the news a lot recently, but not in its normal high-growth, trendy stock way.
TSLA shares have been trending lower thanks to a fatality inside a car on autopilot, the proposed acquisition of SolarCity Corp (SCTY) and a lower–than-expected second-quarter sales total.
While all of these are short-term negatives and shouldn’t be ignored, the company could have an ace up its sleeve that is being pushed to the side. As Tesla continues its direct-to-consumer sales model, a new partnership with Nordstrom, Inc. (JWN) and the continuing opening of new stores at high-profile malls is giving the company a huge presence in front of its addressable customers.
TSLA Stock Finds a Good Match in JWN
Tesla announced it would be opening a gallery at The Grove Shopping Center in Los Angeles. The store will be opened inside an existing Nordstrom store, a first for the company.
The 400-square-foot store-within-a-store will help Tesla reach its target customers and also serves as a way for Nordstrom to maximize its square footage.
Tesla does not have a license to sell at The Grove Shopping Center yet, which means instead, it can only serve as a test drive center and marketing opportunity for the company. Interested customers will have to go online to buy a TSLA car or drive to a different dealership.
This partnership with Nordstrom is one of many ways Tesla continues to get creative in selling directly to customers. Tesla is a unique auto manufacturer because it is not using the normal middle man car dealership model.
While this passes on savings to both customers and TSLA stock, it makes it harder for Tesla to get its cars in front of customers for test drives and hands on showcases.
This is the first deal between Nordstrom and Tesla. Ultimately, this could serve as a test that could lead to Tesla stores inside Nordstrom stores around the country.
Tesla’s vice president of North American Sales is a former Burberry executive with vast experience in high-end retail and shopping malls. Nordstrom has 121 namesake stores in the U.S. and Canada, and an additional 200+ Nordstrom Racks, which are likely too small for Tesla store-within-stores. This gives Tesla the opportunity to open an additional 100+ storefronts.
Keep in mind that TSLA stock currently has only 215 storefronts open globally.
While this is the first Tesla store to open inside a retailer, it’s not the automaker’s first store in a shopping mall. TSLA has stores in high-profile malls across the country and is using this sales model to help broaden its reach.
Investors should take note that malls with Tesla stores have 13% higher sales per square foot. The 24 malls with its stores average $940 per square foot, compared to other malls with $835. Tesla has stores in three of the top 10 rated malls in the U.S., two in California and one in Hawaii.
Tesla is similar here to Apple Inc. (AAPL) and its retail dominance. A 2015 study showed that 75% of the top 100 U.S. malls have Apple retail stores.
Bottom Line for Tesla, Nordstrom
This partnership with Nordstrom seems like a win-win-win for TSLA stock, JWN and high-profile malls in general. I expect this trial to see an extension and also Tesla to get some additional square footage in other Nordstrom locations.
Given the strong high-end retail experience from the VP of Sales, I could see additional deals coming from other retailers as well.
TSLA stock could get a boost from the additional retail locations offering Tesla cars for sale. Demand is already increasing for new models from TSLA. Two less costly versions of the Model S have dropped the price point down to $66,000 (from around $76,000). A new Model 3 is expected to hit the market in 2017 or 2018 with a starting price point of $35,000.
Tesla has already taken 400,000 pre-orders for the Model 3. Imagine Tesla having these mall stores open with price offerings targeting different customers.
Over the Fourth of July holiday weekend, Tesla dumped the news that its second-quarter delivers were below guidance. Only 78% of the company’s manufactured cars in the quarter were delivered to customers, counting them as sales. Tesla also lowered its full-year guidance to a range of 79,000 to 80,000 cars, down from a previous range of 80,000 to 90,000.
This marked the second quarterly miss in a row for Tesla. This was a big negative for the company and has put TSLA stock back in the spotlight.
The big takeaway here is whether you believe Tesla is right about manufacturing causing problems and also whether Tesla can hit its 2018 projection of making 5000,000 cars annually. Most are siding on the bearish side for the short and long term.
TSLA stock has traded between $141.05 and $286.65 over the last 52 weeks. Shares currently sit at around the midpoint of that range as investors try to decide which side to take.
Tesla believes it can still produce about 80,000 cars in 2016 and can hit its goal of 500,000 by 2018. The demand is there for Tesla’s cars, now it’s up to Tesla to manufacture its cars and continue its disruptive direct to customer sales model to beat the long-serving automobile giants.
As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.
