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Tesla’s move to dismantle store network could further sink its solar business

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Tesla Inc. in 2016 paid $2.6 billion for its solar branch (SolarCity) in what looks like a controversial deal. And ever since then the solar business has been on the decline, with the biggest challenge being short supply despite high demand of the products. This has been as a result of Tesla’s level of attention to the business and diversion of SolarCity workforce to its car manufacturing line. In addition to all the troubles, Tesla’s sudden decision to shutter the bulk of its stores around the world brings far more concern to the future of SolarCity, a debt-laden solar-panel sales and installation company founded by two of Musk’s cousins.

Chief Executive Elon Musk announced on Thursday that the electric vehicle maker would shut-down many of its stores around the world to sell cars online only. The announcement implies that the only retail outlet Tesla has for solar sales could be removed too. Musk pulled the plug on a partnership Tesla had with Home Depot last June, leaving just a single outlet for solar sales.

“Solar is now the stepchild at Tesla. They’ve made two decisions in a row that deal crippling blows to the solar business and they may be regretting the Home Depot idea,” said Frank Gillett, principal analyst at Forrester Research.

Gillett said the decision of Tesla is a rushed one that wasn’t thoughtfully done. He opined that in the future, it will hurt them from a brand and marketing point of view.

Tesla’s stock went down 70 percent from its all-time high when it made its offer for SolarCity. The company’s intention in the deal was to be able to sell both cars and solar energy systems to customers. So far, that has not been the case. Tesla’s priority has been the sales of the Model 3 sedan, therefore shrinking its solar business. The company had wide layoffs last June in which it closed a dozen of its solar installation facilities.

Just like the car sales, Tesla also announced that all its energy and solar products sales around the world will now be done online only. It stated that almost 75 percent of its current solar sales volume has been done outside of its retail stores; through the web or referrals.

“The majority of our residential solar and Powerwall orders are already placed outside our retail stores, including online or via referral,” Tesla spokesman said. Adding that the shift to online sales, coupled with a dedicated energy adviser from their support team would result in the best, most seamless customer experience in the industry.

In November 2018, Tesla slashed the prices of its residential solar systems by 25 percent, which generated an average savings of between $3,000 and $5,000. The company cited that the price cut, including the most recent ones, to be partly engineered by its ability to streamline sales operations. It stated that with the shift to online sales, more cost efficiencies will be unlocked.

In Musk’s earlier announcement on Thursday, the CEO said Tesla will keep a small number of stores open in high-traffic locations. These stores will serve as galleries and information centers, where details about energy products will also be offered to customers. When customers order a car on the company’s website, they will be informed during the configuration process if they want to order for solar or other energy products online, Tesla said.

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