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Tesla's Online-Only Sales Decision and the Future of Residential Education

On campuses and showrooms.

March 4, 2019
 
 


Source: https://electrek.co/2019/03/03/tesla-closing-stores/

Tesla is going online.

Going forward, if you want to buy a Tesla, your only option will be digital.  Analog sales, otherwise known as physical Tesla stores, are going away.

In a letter to Tesla employees, reported on electrek.co, Elon Musk wrote:

"Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower by about 6% on average, allowing us to achieve the $35,000 Model 3 price point.”

Some Tesla stores in high-traffic areas will remain open.  But rather than selling cars, these physical locations will exist only for marketing.

Where Tesla is going, will higher ed follow?

Might there be some intermediate step between academic business as usual and a school closing its doors?

Will we see a private liberal arts school, one that is tuition dependent and buffeted by unfavorable local demographic trends, decide to cease campus operations - and go entirely online?

Our first response may be “no way.”  If you know anything about online education, you know that quality does not come cheap.  It is an expensive and intensive proposition to create and run an online course. Scaling online courses up to online programs is even more challenging.

Still…how might the economics of a struggling school shift if the cost for maintaining a physical campus could be significantly reduced or even eliminated?

Is it possible that campus buildings no longer needed for classrooms, residence halls, and labs could be converted into assets (such as housing or offices) that would generate enough dollars to enable the online university to develop?

How much do schools spend on maintaining their physical campuses? A 2016 report from the Delta Cost Project, Trends in College Spending: 2003–2013, gives some indication.  The report includes a category of higher ed expense for Operation and Maintenance. These costs are defined as “service and maintenance of the physical plant, grounds and buildings maintenance, utilities, property insurance, and similar items.”.

Looking at the “private master’s” category - the type of school that has even the potential of going fully online - the expense breakdown per FTE student (in 2013) dollars are as follows:

Instruction $7,995
Research $486
Student Services $3,352
Public Service $450
Academic Support $1,884
Institutional Support $4,106
Operation and Maintenance $1,512

Of the average expenditure (in 2013) per FTE student of $19,785 (at a private master’s school), 7.6% is spent on operations and maintenance.

Clearly, for tuition-dependent schools with small endowments, saving 7.6 percent by shifting all operations online is not going to save the day.  This is true even if the classrooms and dorms could be rented out.  (An iffy proposition).

Still, could going entirely online force a school to focus on areas that have the potential for long-run economic viability?

If you believe that the future of postsecondary education is providing life-long learning mediated by digital platforms - rather than full-time residential education for 18-22 year olds - then a move to fully online would force a school to make that transition.

A 2016 article in The Atlantic, The Paradox of New Buildings on Campus, reported that American colleges face $30 billion of deferred campus maintenance.  On top of all the old buildings that schools need to fix, more than $11.5 billion is spent each year on new campus construction.

The vast majority of colleges and universities may never follow Tesla and go entirely online.  But can we imagine any schools taking this step?

How much of the value of higher education is tied up in its buildings?

Might the future of the college campus resemble the new Tesla showrooms, as a place to market the university but not to stay and receive instruction?

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