Tesla is taking significant steps to mend its strained relationships with European leasing companies. This move follows a series of retail price cuts that devalued their fleets and ongoing issues with slow and costly repairs. According to a Reuters investigation, involving executives from major leasing and rental firms and corporate fleet managers, Tesla is trying to address these problems through unofficial discounts and improved service.
The Fallout from Price Cuts
Tesla’s strategy of cutting retail prices aimed to boost sales in the face of softening global demand for electric vehicles (EVs) and rising competition from Chinese manufacturers like BYD. However, this strategy backfired for European leasing companies, whose business relies heavily on the resale value of vehicles. In Europe, fleet purchases make up nearly half of all auto sales, so sudden price cuts have severely impacted leasing companies’ financial models.
Leasing companies determine lease costs based on the expected resale value of vehicles at the end of the lease term. Tesla’s abrupt price reductions have significantly lowered these residual values, causing financial losses. Richard Knubben, director general of Leaseurope, a Brussels-based industry group, highlighted the issue, saying, “There’s nothing worse than continuously dropping the value of a fleet buyer’s assets.”
Unofficial Discounts and Efforts to Mitigate Losses
To mitigate these issues, Tesla has been offering unofficial end-of-quarter discounts on in-stock Model 3 and Model Y vehicles to leasing companies since mid-2023. These discounts, up to 2,000 euros, have now become more consistently available. Despite these efforts, leasing firms remain uncertain if the discounts are enough to counter the rapid decline in Tesla’s resale values.
Tim Albertsen, CEO of Ayvens, Europe’s largest auto-leasing company, acknowledged that Tesla’s service has improved, but the drop in resale values continues to be problematic. He noted that Tesla is attempting to offer solutions, though specific measures were not disclosed.
Rising Competition and Changing Preferences
Tesla’s challenges are further complicated by increasing competition from Chinese EV manufacturers and legacy automakers like Volkswagen and BMW. These competitors are producing more appealing EV models while maintaining strong resale values. Arval, the car-leasing unit of BNP Paribas, has started exploring partnerships with Chinese automakers due to financial losses from declining Tesla values.
Bart Beckers, Deputy CEO of Arval, criticized Tesla’s pricing strategy, stating, “You are really shooting yourself in the foot.” Arval, which leases about 170,000 EVs, is now actively considering alternatives to Tesla.
Service and Repair Issues
European leasing companies and their customers also face significant issues with Tesla’s service and repair processes, described as slow and expensive. Corporate fleet managers have reported that Tesla’s repair times are lengthy and costs are higher compared to other vehicles, partly due to the high price of parts.
Lorna McAtear, fleet manager at UK energy firm National Grid, highlighted these problems, noting that Tesla’s repair costs are triple the industry average. She also pointed out issues with Tesla’s ordering system and the delivery of defective vehicles, such as those with warped windshields that Tesla refused to fix under warranty. National Grid, with over 500 Teslas in its fleet, is considering dropping Tesla unless these issues are resolved.
Improving Customer Relations
Despite these challenges, Tesla is making efforts to improve its customer relations. McAtear mentioned a recent face-to-face meeting with Tesla representatives, where the automaker promised service improvements, a fix for the ordering system, and ongoing meetings to address unresolved issues. This was a notable development for McAtear, who had experienced years of frustration with Tesla’s unresponsiveness.
Fiona Howarth, CEO of Octopus Electric Vehicles, provided a more positive perspective, stating that Tesla has made significant progress in addressing service operations. She noted that other legacy automakers now face similar challenges with their own EVs.
Future Prospects
Tesla’s efforts to reconcile with leasing companies come at a critical time. The automaker reported an 8.5% drop in global deliveries during the first quarter of 2023, marking its first decline in four years. In Europe, Tesla’s fleet sales fell by 2.3% while the overall market grew by 3.5%. This decline followed a period of strong growth in 2022, when Tesla’s fleet sales in Europe increased by 57%.
