Tesla is making significant efforts to mend relations with European leasing companies and fleet managers after a series of retail price cuts significantly depreciated their fleets’ value. The electric vehicle (EV) giant is also addressing complaints about its slow service and expensive repairs, which have alienated many corporate customers.
In response to these issues, Tesla is offering unofficial discounts on new car purchases, provided the vehicles are in stock. This move is part of a broader strategy to appease leasing companies and tackle widespread service, repair, and ordering complaints, which fleet managers and leasing firms say Tesla has long ignored. These insights were gathered from interviews conducted by Reuters with executives from major leasing and rental car firms, as well as numerous corporate fleet managers.
Tesla’s retail price cuts were intended to boost sales in the face of softening global demand for electric vehicles and rising competition from Chinese EV manufacturers such as BYD. However, these price reductions have negatively impacted leasing companies, which buy new cars and arrange leases based on the expected resale value at the end of the lease term. Sudden drops in Tesla’s prices have undercut these residual values, leading to financial losses for leasing firms.
“There’s nothing worse than continuously dropping the value of a fleet buyer’s assets,” said Richard Knubben, director general of Brussels-based Leaseurope, a leasing and rental industry group representing national organizations across 31 countries. “Tesla is now actively telling our members: We can give you discounts and compensate you,” Knubben added. “But Tesla’s residuals have dropped so fast, I’m not sure the discounts they’re offering are enough.”
A top executive at a large European car-leasing firm, who spoke on condition of anonymity, revealed that Tesla began offering unofficial end-of-quarter discounts on its Model 3 and Model Y vehicles starting in mid-2023. These discounts, amounting to up to 2,000 euros ($2,134), were initially for vehicles in stock and available all the time since late last year.
Tim Albertsen, CEO of Ayvens, Europe’s largest auto-leasing company with a fleet of 3.4 million cars (about 10% of which are EVs), acknowledged improvements in Tesla’s service but highlighted the damage caused by falling resale values. “Tesla has understood that and is coming with solutions that help us with that,” he said, though he declined to elaborate on the specifics.
Arval, the car-leasing unit of BNP Paribas, is now considering purchasing EVs from three Chinese automakers after incurring losses due to declining Tesla values. Arval Deputy CEO Bart Beckers noted that when Tesla first started cutting prices, they warned the automaker, “You are really shooting yourself in the foot.” Arval leases about 170,000 EVs within its 1.7 million-vehicle fleet.
The issue of falling resale values also affects rental car companies. Hertz has been selling off its Teslas in the U.S. market, while German rival Sixt has ceased purchasing them. Sixt reported that lower residual values on EVs from Tesla and other brands reduced its 2023 earnings by 40 million euros ($42.7 million).
Fleet customers are critical in any automotive market, especially in Europe, where firms frequently lease large numbers of company cars for employees, benefiting from associated tax breaks. Leasing and rental car company purchases accounted for 44% of Tesla sales last year in the UK and 15 EU countries, according to market research firm Dataforce.
Tesla’s first-quarter fleet sales in these countries fell 2.3%, while the overall market increased by 3.5%. Despite this decline, leasing companies’ and rental car firms’ share of Tesla’s business in these markets rose to 49%. Tesla’s global deliveries fell by 8.5% during the first quarter, marking its first decline in four years.
The rapid rise in Chinese automakers’ presence, especially from BYD, and the increasing competitiveness of legacy automakers like Volkswagen and BMW, are challenging Tesla’s dominance. These companies are aggressively targeting Tesla’s corporate customers by maintaining stronger resale values for their EVs.
Beyond price and competition, slow and costly Tesla service has been another major complaint. Fiona Howarth, CEO of Octopus Electric Vehicles, highlighted that Tesla, as an EV pioneer, needed time to refine its service operations and that other automakers are now facing similar challenges with their EVs. She noted that Tesla’s resale values were artificially high during the pandemic and needed to adjust.
However, others like Lorna McAtear, fleet manager at UK energy firm National Grid, reported much rockier relations with Tesla. She cited issues such as high repair costs, a cumbersome ordering system, and cars delivered with defects. McAtear indicated that Tesla’s recent commitments to improve service and ordering systems have provided some hope for better relations.
Tesla’s proactive measures reflect its understanding of the critical importance of fleet customers, particularly in the competitive European market. However, as competition intensifies, Tesla will need to continue addressing these concerns to maintain its market position and customer satisfaction.