Retail customers may approve of Tesla's habit of announcing sudden, sharp price cuts on its electric cars. The same cannot be said for corporate customers such as rental and leasing companies, which rely on cars holding their value in the resale market.
We've seen this in the US with Hertz, which was forced to write off a significant portion of its Tesla fleet after major price cuts hit the second-hand market, forcing the company into an embarrassing U-turn.
Now, Elon Musk's electric car giant is trying to avoid the same thing happening in Europe, where leasing companies account for half of its sales and where it has recently engaged in deep price cuts to compete with Chinese automakers including BYD and to get a jump on local prices. Automakers such as Volkswagen.
Tesla is embarking on what is described as a “damage control” mission to calm these customers before they go the same route as Hertz. Reuters mentioned.
The automaker is offering significant “unofficial discounts” to corporate customers — who have also complained of poor service from Tesla and exorbitant repair costs — for in-stock cars, the reports said, citing several leasing company executives and corporate fleet managers.
Old headache
Reports of automakers offering discounts to their disgruntled leasing customers are nothing new.
In February, global leasing company CEO Ivins said he had already received checks from car companies to compensate them for the decline in the value of their fleet. Leasing companies have demanded concessions from electric car makers who they accuse of cutting into their profit margins, including buying back cars at the end of the lease.
“Manufacturers today need to continue selling electric vehicles,” Tim Albertsen, Evins' president, said during the group's earnings call. “We then need some kind of protection from the manufacturers regarding their future prices.”
It's a familiar problem for Tesla, having seen a once-central agreement with US leasing group Hertz deteriorate amid falling resale values and declining interest in electric vehicles.
Hertz announced plans in 2021 to buy 100,000 Tesla cars, one of several boosts for Musk's company that have helped its valuation soar amid growing demand for electric vehicles.
But it has proven to be a disastrous bet for Hertz, which has had to adjust to falling resale values as demand for electric vehicles declined last year and the impact of Musk's price cuts took hold. In fact, the unexpected decline in the value of EVs proved to be a $195 million headache for the company.
That was enough to mark the end of Stephen Shear's tenure as chief executive of the leasing group. He announced in March that he would step down from the group, after heavy losses suffered by its electric vehicle unit.
Tesla faces the challenge of regaining confidence in Europe before the same thing happens there, where it has the added problem of competing with Chinese electric cars to consider.
Leasing companies are eyeing the prospect of shifting loyalties to Chinese electric car makers, whose ultra-cheap prices have already stunned European automakers.
Arval is owned by BNP Paribas Announce A European partnership in February with Chinese electric vehicle giant BYD, for example.
Arval CEO Bart Beckers accused Tesla of “really shooting itself in the foot” last year when the electric car maker embarked on steep price cuts to compete with the likes of BYD.
Tesla's problem is that there is no easy solution to its strategic dilemma. If it lowers prices, it will hurt the renter half of its customer base, but if it doesn't lower prices, it will deter the other half, potential retail buyers. It hopes that weak demand will begin to pick up, and that the era of cheap Chinese cars flooding the market will end, allowing it to satisfy both groups.