Tesla to drop stores to focus on online sales

Tesla is largely abandoning its long-controversial retail model of factory-owned stores, it said Thursday, turning instead to an equally radical model for selling cars — online sales only.

The shift in retail strategy occurs as the California electric-vehicle maker grapples to compete in a new world of lower-priced EVs. Tesla has announced plans to bring the $35,000 version of the Model 3 electric sedan to market as early as March.

"Over the next few months, we will be winding down many of our stores, with a small number of stores in high-traffic locations remaining as galleries, showcases and Tesla information centers," the company said.

"Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower all vehicle prices by about 6% on average, allowing us to achieve the $35,000 Model 3 price point earlier than we expected," the company said.

Tesla has locked horns with some franchised dealers for years over its model of factory-owned stores — a concept that many state laws in the U.S. have long prohibited to protect traditional franchised new-vehicle dealers.

Many of Tesla's approximately 120 U.S. stores are located in malls and shopping centers. Unlike the traditional all-inclusive "Taj Mahal" auto dealership, Tesla stores have small real estate footprints and lack a service center and finance and insurance department. The stores serve as vehicle showcases, information centers and test drive locations. New vehicles are typically ordered online.

But as more automakers begin challenging the EV upstart in earnest, Tesla is looking for ways to lower sticker prices without sacrificing long-term profitability. Tesla said it will jettison most of its stores to move to exclusive online retailing.

"You can now buy a Tesla in North America via your phone in about 1 minute, and that capability will soon be extended worldwide," the company said.

If succesful, Tesla's planned online-only sales model will further pressure an auto industry that finds itself bound by franchise dealer laws.

"There are a lot of other chains out there that are virtual," Karl Brauer, publisher of Kelley Blue Book and Autotrader said. "Amazon has shown us that you don't have to have a physical presence."

While Tesla is scaling back its retail footprint, the automaker is doubling down on service infrastructure investment. Service has become a major choke point as the Tesla fleet swells. Model 3 reservations ballooned to more than half a million orders in 2017.

Tesla stated that it has a goal of "same-day, if not same-hour service."

To avoid overwhelming service center locations, Tesla is relying on a fleet of mobile technicians who service customer vehicles in their driveway and office garages.

To allay additional consumers' concerns about buying a vehicle unseen without first test-driving it, Tesla is offering a seven day, 1,000-mile return policy.

"Quite literally, you could buy a Tesla, drive several hundred miles for a weekend road trip with friends and then return it for free," the company noted in its statement. "With the highest consumer satisfaction score of any car on the road, we are confident you will want to keep your Model 3."

With a generous return policy and the promise of expanded service, Tesla CEO Elon Musk has eliminated the need for a physical retail network, Brauer said.

"The only reason you need a retail presence is to make sure people can see the cars they want to buy and to service them after they've bought them," Brauer said.