Written by Nick Carey and Mary Manns
LONDON (Reuters) – Tesla Inc (NASDAQ:) is appeasing some European leasing companies after the automaker's repeated cuts in retail prices reduced the value of its fleets and slow service and expensive repairs alienated its corporate customers.
The efforts include informal discounts on new car purchases if they are in stock, efforts to address service and repair complaints and widespread demand after years in which fleet managers and leasing companies say Tesla ignored those issues, according to Reuters interviews with nine executives from rental and leasing companies. Major cars, along with about a dozen corporate fleet managers.
Tesla's retail price cuts are aimed at boosting sales in response to declining demand for electric vehicles globally and increasing competition, especially from Chinese electric vehicle makers like BYD (SZ:). But that hurt the bottom line for its biggest customers in Europe — where fleet purchases account for nearly half of car sales.
Leasing companies buy new cars and arrange leases calculated on the amount they think they can sell them for at the end of the lease. The sudden drop in prices undermined those residual values, costing rental companies money.
Richard Nobbin, managing director of Brussels-based Leaseurope, a leasing and leasing industry group that represents national groups in 31 countries, said there was “nothing worse” than a continued decline in the value of fleet buyers' assets.
“Tesla is now saying to our members: 'We can offer you discounts and reimburse you,'” Nobin said. “But Tesla's waste has dropped so quickly, I'm not sure the discounts it's offering are enough.”
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Tesla did not respond to requests for comment.
Tesla's declining resale values and tensions with fleet customers are known but its damage control campaign to address them has not been previously reported.
A senior executive at a large European car rental company, who spoke on condition of anonymity because he did not have permission to comment publicly on Tesla, said that starting in mid-2023, Tesla offered unofficial end-of-quarter discounts on its cars. Model 3 and Model Y up to €2,000 ($2,134) for rental company purchases, if those vehicles are in stock.
Since late last year, these discounts have been available all the time, he said.
Tim Albertsen, CEO of Ayvens — Europe's largest car rental company with a fleet of 3.4 million cars, about 10% of which are electric vehicles — said Tesla's service had improved but falling resale values were detrimental. “Tesla understands this and is offering solutions that help us achieve this,” he said.
Albertsen declined to explain what Tesla has done to mitigate Ivins' losses in electric vehicles.
Arval, the car leasing unit of BNP Paribas (OTC:)), is now in talks with three Chinese automakers about buying electric cars after suffering losses linked to falling Tesla values. When Tesla first started cutting prices last year, Arval told the automaker: “You're really shooting yourself in the foot,” said Arval Executive Vice President Bart Bekkers.
Arval leases about 170,000 electric vehicles as part of its fleet of 1.7 million vehicles, Baker said. He said Tesla is working to fix repair and service issues, but added that the auto industry's “new competitors” — Chinese electric vehicle makers — appear to be avoiding Tesla's mistakes by focusing on maintaining strong resale values for cars.
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The automaker faces the same resale value problem with car rental companies. Hertz was selling Tesla cars in the American market, while its German competitor Sixt stopped buying them. Asked about the impact of Tesla's price cuts, Sixt said lower residual values on electric vehicles from Tesla and other brands reduced its 2023 profits by 40 million euros ($42.7 million).
Important clients
Fleet customers are important in any automotive market, but this is especially important in Europe, where companies often lease large numbers of company cars to employees, partly because of the associated tax breaks. Car rental and leasing company purchases accounted for 44% of Tesla sales last year in the United Kingdom and 15 countries in the European Union, according to market research firm Dataforce.
Tesla's first-quarter fleet sales in those countries fell 2.3% while the market as a whole rose 3.5%. Even with its fleet sales declining, the share of rental companies and car rental companies of Tesla's business in those markets rose to 49%.
Tesla's sales and profits are declining globally after a long period of sharp growth. The automaker reported an 8.5% decline in global deliveries during the first quarter, its first decline in four years.
The decline in fleet sales in those 16 European countries follows 57% growth in 2023, compared to the previous year, according to Dataforce. Tesla posted the same percentage growth for all sales across Europe, according to the European Automobile Manufacturers Association.
Until recently, Tesla had a leadership advantage, meaning European corporate customers had few alternatives to electric vehicles to meet indoor climate or EU emissions targets.
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This is changing rapidly. Chinese automakers, including BYD, are bringing low-cost electric models to Europe and are aggressively courting Tesla customers, according to fleet managers, along with executives from leasing companies. Legacy automakers like Volkswagen (ETR:) and BMW (ETR:) are also producing increasingly competitive electric vehicles.
“Pent-up frustration”
Tesla's slow and expensive service was another sore point for European leasing companies and their customers, according to Reuters interviews with about a dozen corporate fleet managers. Most of them declined to reveal their identity because they are striving to solve problems with Tesla.
They say repairs take a long time and cost much more than other vehicles, partly because of expensive replacement parts.
However, Tesla has satisfied fleet customers.
Octopus Electric Vehicles, the car leasing arm of British energy company Octopus Energy, owns about 5,000 Teslas out of about 15,000 electric vehicles. CEO Fiona Howarth said that Tesla, as a leader in electric vehicles, needs time to figure out service operations and that legacy automakers are now facing similar challenges with their own electric vehicles. She said Tesla's resale values were artificially high during the coronavirus pandemic and needed to come down.
“We had a really good working relationship with Tesla,” she said.
Lorna McAteer, fleet manager at the British energy company National network (LON:) Describe the most tense relations with Tesla. It has been compiling data on repair costs and found that Tesla's repair costs are three times the industry average.
Other problems include a cumbersome ordering system and cars arriving with defects, McAteer said. For example, she said, Tesla delivered a number of electric cars with warped windshields and refused to repair them under warranty.
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National Grid has more than 500 Tesla cars in the company's 2,000-vehicle fleet. McAteer said she planned to suggest that her company drop Tesla from its fleet unless the problems are addressed. Meanwhile, Tesla's main Chinese competitor, BYD, has begun delivering cars to National Grid.
McAteer said she pushed for a face-to-face meeting with Tesla representatives in mid-April. During that meeting, the automaker promised service improvements and an overhaul of the ordering system, along with additional meetings and a “roadmap” to resolve outstanding issues, making McAtear feel like “we finally have customer service.”
She said the automaker had been unresponsive in the past: “There were years of pent-up frustration that fleets couldn't talk to Tesla.”
($1 = 0.9373 euros)