Tesla’s recent retail price cuts have triggered a series of challenges for European leasing companies, leading to efforts by the automaker to mend relationships and address concerns raised by its corporate customers.
Impact of Retail Price Cuts
The retail price cuts implemented by Tesla were aimed at boosting sales in response to softening demand for electric vehicles (EVs) globally, as well as increasing competition from Chinese EV manufacturers like BYD. However, these price reductions adversely affected the bottom lines of leasing companies, as sudden drops in prices significantly undercut the residual values of leased vehicles, resulting in financial losses for these firms.
Damage Control Efforts
In response to the challenges faced by leasing companies, Tesla has initiated efforts to alleviate their concerns and mitigate the impact of falling resale values. These efforts include offering unofficial discounts on new car purchases, particularly for vehicles in stock, and addressing long-standing issues related to service, repairs, and ordering processes. Despite these measures, some leasing executives remain skeptical about the effectiveness of Tesla’s attempts to compensate for the decline in residual values.
Discount Offers and Service Improvements
Tesla reportedly began offering end-of-quarter discounts on its Model 3 and Model Y vehicles to leasing companies starting in mid-2023, with discounts ranging up to 2,000 euros ($2,134) per vehicle. These discounts were initially offered intermittently but have since become available consistently throughout the year. Additionally, Tesla has made efforts to improve its service quality, addressing concerns raised by leasing firms and corporate fleet managers regarding slow service and expensive repairs. While some executives acknowledge improvements in Tesla’s service, others remain critical of the automaker’s handling of repair issues.
Response from Leasing Companies
European leasing companies, such as Ayvens and Arval, have acknowledged the impact of Tesla’s falling resale values on their operations. Ayvens, Europe’s largest auto-leasing company, has expressed concerns about the damage caused by declining Tesla values but has refrained from disclosing specific measures taken by Tesla to address these issues. Arval, on the other hand, has explored alternative options, such as engaging with Chinese automakers to purchase EVs, following losses associated with declining Tesla values.
Challenges and Competition
Tesla’s challenges with fleet customers extend beyond leasing companies to rental-car firms like Hertz and Sixt. Lower residual values on Tesla vehicles have led to reduced earnings for these companies, prompting Sixt to halt its purchases of Tesla vehicles altogether. Moreover, Tesla faces increasing competition from Chinese automakers and legacy automakers like Volkswagen and BMW, which are producing competitive EVs with a focus on maintaining strong resale values.
Customer Relations and Service Quality
While some fleet customers have expressed satisfaction with Tesla’s service and relationship management, others have raised concerns about slow repairs, expensive maintenance, and defects in delivered vehicles. National Grid, a UK-based energy firm, has highlighted issues with Tesla’s repair costs, ordering system, and vehicle defects, indicating a strained relationship with the automaker. Despite assurances from Tesla regarding service improvements and resolution of outstanding issues, some customers remain skeptical about the automaker’s commitment to addressing long-standing concerns.
In conclusion, Tesla’s efforts to mend relationships with European leasing companies and corporate fleet managers reflect the challenges posed by declining resale values and competition in the EV market. While the automaker has taken steps to address these issues, the effectiveness of its initiatives remains subject to scrutiny, as fleet customers seek assurances regarding service quality, pricing, and vehicle resale values.
