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Tesla suddenly backtracks on store closings

Tesla is throwing its revamped sales strategy into reverse.

Less than two weeks after saying it would close all of its stores and galleries in a cost-saving shift to push all of its electric vehicle and solar energy product sales online, the company is making a sudden about-face on the store closings.

Tesla said late Sunday that it will keep about half of its 130 stores open, although it still will require that all orders be placed online.

The shift has a direct impact on Tesla's approach to selling rooftop solar and the solar roof that is still under development and is slated to be produced at its factory in Buffalo.

But the shift also comes at a price: Tesla, which said late last month that it would cut its vehicle prices by about 6 percent to reflect the savings from closing all of its stores, now will raise those recently reduced prices by an average of 3 percent on its more expensive vehicles, except for the $35,000 version of its Model 3 sedan, since it will be closing only half as many stores.

Keeping more of the stores open will allow more face-to-face contact between Tesla representatives and customers, who also would be able to view store displays on the company's solar energy products.

Without stores, the majority of customers who wanted to buy a rooftop solar system from Tesla would have to do it online, many without ever having seen a Tesla solar panel or solar shingle in person – unless a friend or neighbor has one installed. Tesla has said about 75 percent of its residential solar orders already are placed online, although it has not indicated how many of those purchases originate with a visit to a Tesla store or gallery.

"The majority of our residential solar and Powerwall orders are already placed outside our retail stores, including online or via referral, and we believe this shift to online sales, paired with a dedicated energy advisor from our support team, will result in the best, most seamless customer experience in the industry," a Tesla spokeswoman said in an email Monday.

Closing all of the Tesla stores would have further reduced the company's sales initiatives for rooftop solar at a time when its solar energy business has lost its once-commanding share of the residential solar market and overall installations have fallen to a five-year low.

Tesla's conventional solar installations fell by 17 percent to a five-year low during the fourth quarter. Its solar deployments last year were down 62 percent from just two years ago, when it was the unquestioned leader in the residential rooftop market with a market share of around 33 percent. It's now No. 2, and its market share is around 9 percent, according to analysts at Wood Mackenzie Power & Renewables.

Tesla doesn't expect the decline to stop, either. The company said last month that solar deployments would drop even further during the first quarter to another post-2012 low.

As Tesla has focused its resources on launching its lower-priced Model 3 electric sedan, the company has repeatedly taken steps to slash costs at the solar energy business it acquired in November 2016 through its acquisition of SolarCity, a money-losing company run by Tesla CEO Elon Musk's cousins.

Under Tesla, the solar energy business has shifted its sales strategy away from leases that allowed consumers to purchase rooftop solar with no money down to sales where the consumer buys and finances the installation. That shift greatly reduced the financial drain that the solar energy business endured from having to cover the up-front costs of most of its installations.

But Tesla also grappled with the other big challenge facing residential solar installers: Rooftop solar energy systems are difficult to sell – and those sales expenses add up quickly.

David Robinson: Tesla Solar goes on life support while Musk tries to sell cars

Since buying SolarCity, Tesla has repeatedly taken steps to reduce those customer acquisition costs, even if it meant installing fewer solar energy systems. It stopped selling rooftop solar systems door-to-door. It launched – and quickly scrapped – a program to sell rooftop solar through Home Depot stores.

Instead, Musk's vision for selling rooftop solar – including Tesla's long-delayed solar roof – was to tie it in with its electric vehicles. Musk's idea was that the same environmentally conscious customers who want to scrap their gas-powered and environmentally damaging cars and SUVs for a much greener electric vehicle also would be interested in putting solar panels on their roof.

So Tesla added displays in some of its stores that showed off the solar energy systems to the customers who walked in to look into buying an electric car. Tesla also relied heavily on word-of-mouth recommendations, and it reduced prices last year by an average of $3,000 to $3,500.

Tesla, in a blog post announcing the decision to keep more of its stores open, didn't give a reason for the change of heart, but the company has been facing financial pressure as it scrambles to increase production of its Model 3 and start selling less costly versions of the sedan that further pressure the company to reduce costs.

The store closings came a month after Tesla said it would cut its workforce by 7 percent and within days of the company paying off $920 million of its convertible bonds in cash. Tesla was profitable in the fourth quarter, and Musk last month said he expected another profit in the first quarter of this year. But Musk said late last month that he now expects Tesla to post a loss during the first quarter.

“The seemingly spontaneous yet dramatically altering strategic decisions doesn’t lend a lot of confidence,” wrote Joseph Spak, an analyst at RBC Capital Markets, in a research note on Monday. “It makes it seem like Tesla is making decisions on the fly and reacting to very short-term factors.”

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