Tesla doing damage-control, discounts for European fleet buyers

Ayvens SA

20/05/2024 06:00

By Nick Carey and Marie Mannes
       LONDON, May 20 (Reuters) - Tesla is working to appease
some European leasing companies after the automaker’s repeated
retail price cuts tanked their fleets’ value and its slow
service and expensive repairs alienated their corporate
customers.
    The efforts include unofficial discounts on purchases of new
cars if they are in stock and efforts to address widespread
service, repair and ordering complaints after years in which
fleet managers and leasing firms say Tesla has ignored those
problems, according to Reuters interviews with nine executives
from major leasing and rental-car firms, along with about a
dozen corporate fleet managers.
    Tesla’s  TSLA.O  retail price cuts aimed to bolster sales in
response to softening electric-vehicle demand globally and
rising competition, especially from Chinese EV makers such as
BYD  002594.SZ . But that damaged the bottom lines of its
biggest customers in Europe — where fleet purchases represent
nearly half of auto sales.
    Leasing companies buy new cars and arrange leases calculated
on how much they believe they can sell them for at the end of
the lease. Sudden drops in price undercut those residual values,
costing leasing firms money.
    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 which represents national groups across 31
countries.
    "Tesla is now actively telling our members: We can give you
discounts and compensate you," Knubben said. "But Tesla's
residuals have dropped so fast, I'm not sure the discounts
they're offering are enough."
    Tesla did not respond to requests for comment.
    Tesla’s falling resale values and tensions with fleet
customers are known but its damage-control campaign to address
them has not been previously reported.
    A top executive at a large European car-leasing firm, 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 Model 3 and Model Y by up to 2,000 euros ($2,134) for
leasing-company purchases, if those vehicles were in stock. 
    Since late last year, he said, those discounts have been
available all the time.     
    Tim Albertsen, CEO of Ayvens  ALDA.PA  — Europe's largest
auto-leasing company with a fleet of 3.4 million cars, about 10%
of which are EVs — said Tesla’s service has improved but its
falling resale values have been damaging. "Tesla has understood
that and is coming with solutions that help us with that," he
said.
    Albertsen declined to elaborate on what Tesla has done to
mitigate Ayvens’ losses on EVs.
    Arval, the car-leasing unit of BNP Paribas'  BNPP.PA , is
now talking to three Chinese automakers about buying EVs after
taking losses tied to declining Tesla values. When Tesla first
started cutting prices last year, Arval told the automaker: “You
are really shooting yourself in the foot,” said Arval Deputy CEO
Bart Beckers.
    Arval leases about 170,000 EVs as part of its 1.7
million-vehicle fleet, Becker said. He said Tesla is working to
fix repair-and-service problems but added the automaker’s “new
challengers” — Chinese EV makers — seem to be avoiding Tesla’s
mistakes by focusing on maintaining strong resale values for
cars. 
    The automaker faces the same resale-value problem with
rental-car companies. Hertz  HTZ.O  has been selling off Teslas
in the U.S. market, while German rival Sixt  SIXG.DE  has
stopped buying them. Asked about the impact of Tesla’s price
cuts, Sixt said lower residual values on EVs from Tesla and
other brands reduced its 2023 earnings by 40 million euros
($42.7 million).
     
    CRITICAL CUSTOMERS
    Fleet customers are important in any automotive market but
especially so in Europe, where firms often lease large numbers
of company cars for employees, in part because of associated tax
breaks. Leasing and rental-car company purchases comprised 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 those countries fell
2.3% while the market as a whole was up 3.5%. Even as its fleet
sales fell, leasing companies’ and rental car firms’ share of
Tesla’s business in those markets rose to 49%.
    Tesla's sales and profits are falling globally after a long
period of sharp growth. The automaker reported an 8.5% drop in
global deliveries during the first quarter, its first decline in
four years.
        The decline in fleet sales in those 16 European
countries comes after 57% growth in 2023, over 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 first-mover advantage that meant
European corporate customers had few alternatives for EVs to
meet internal climate goals or EU emissions targets.
    That’s changing swiftly. Chinese automakers including BYD
are bringing lower-cost electric models to Europe and
aggressively courting Tesla's corporate customers, according to
fleet managers, along with executives from leasing firms. Legacy
automakers such as Volkswagen and BMW are also producing
increasingly competitive EVs.
     
    ‘PENT-UP FRUSTRATION’
    Slow and expensive Tesla service has been another sore point
with European leasing companies and their customers, according
to Reuters interviews with about a dozen corporate fleet
managers. Most declined to be identified because they are
actively seeking to resolve problems with Tesla.
    Its repairs take too long and cost far more than other
vehicles, partly because of pricey parts, they say.
    Even so, Tesla does have satisfied fleet customers.
    Octopus Electric Vehicles, the car-leasing arm of UK energy
firm Octopus Energy, has about 5,000 Teslas among about 15,000
EVs. CEO Fiona Howarth said that Tesla, as an EV pioneer, needed
time to figure out service operations and that legacy automakers
now face similar challenges with their own EVs. She said Tesla
resale values were artificially high during the coronavirus
pandemic and needed to come down.
    "We've had a really good working relationship with Tesla,"
she said.
    Lorna McAtear, fleet manager at UK energy firm National
Grid, described much rockier relations with Tesla. She’s been
compiling data on repair costs and found Tesla’s to be triple
the industry average.
    Other problems, McAtear said, include a cumbersome ordering
system and cars arriving with defects. For instance, she said,
Tesla delivered a number of EVs with warped windshields and
declined to fix them under warranty.
    National Grid has more than 500 Teslas in its company-car
fleet of 2,000 vehicles. McAtear said she has planned to propose
her company drop Tesla from its fleet unless the problems are
addressed. Meanwhile, Tesla’s chief Chinese rival, BYD, is
starting to deliver cars to National Grid.
    McAtear 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 ordering-system
fix, along with additional meetings and a “roadmap” for
resolving outstanding problems leaving McAtear feeling like "we
finally have customer service." 
    The automaker has been unresponsive in the past, she said:
"There have been years of pent-up frustration that fleets can't
talk to Tesla."  
    ($1 = 0.9373 euros)

 (Reporting By Nick Carey in London, Marie Mannes in Stockholm
and Hyunjoo Jin in San Francisco. 
Additional reporting by Christina Amann in Berlin.
Editing by Brian Thevenot and Anna Driver)
 ((mailto:nick.carey@thomsonreuters.com; +44 7385 414 954;))