Exclusive: Tesla deals with damage repairs, discounts for fleet buyers in Europe From Reuters

Nick Carey and Marie Mannes

LONDON (Reuters) – Tesla (NASDAQ:) is trying to reassure some European leasing companies after the automaker’s repeated retail price cuts slashed the value of their fleets, while slow maintenance and expensive repairs alienated their corporate customers.

Those efforts include informal discounts on new vehicle purchases when they’re in stock, as well as efforts to address widespread complaints about service, repairs and orders after years of fleet managers and leasing firms saying Tesla ignored those problems, according to interviews Reuters with nine executives from major car leasing and rental firms, as well as about a dozen corporate fleet managers.

Tesla’s retail price cuts were aimed at boosting sales in response to declining demand for electric vehicles worldwide and growing competition, especially from Chinese electric vehicle makers such as BYD (SZ:). But that has hurt profits for its biggest customers in Europe, where fleet purchases account for almost half of car sales.

Leasing companies buy new cars and enter into lease agreements based on how much they think they can sell them for at the end of the lease term. The sudden drop in prices led to lower residual values, costing leasing firms money.

“There is nothing worse” than a permanent decline in the value of a fleet buyer’s assets, said Richard Knubben, chief executive of Brussels-based Leaseurope, a car leasing and rental group that represents national groups in 31 countries.

“Tesla is now actively telling our members: We can give you discounts and compensate you for your losses,” Knubben said. “But Tesla’s revenue has fallen so quickly that I’m not sure the discounts they’re offering are enough.”

Tesla did not respond to requests for comment.

Tesla’s falling resale value and tensions with fleet customers are known, but a damage control campaign to address them has not previously been reported.

A top executive at a major European car leasing company, who spoke on condition of anonymity because he was not authorized to comment publicly on Tesla, said that starting in mid-2023, Tesla offered unofficial end-of-quarter discounts on its vehicles. Model 3 and Model Y up to €2,000 ($2,134) when purchased from a leasing company if they were in stock.

According to him, these discounts have been in effect continuously since the end of last year.

Tim Albertsen, chief executive of Ayvens, Europe’s largest car leasing company with a fleet of 3.4 million vehicles, about 10% of which are electric vehicles, said Tesla’s services had improved but a fall in its resale value had hurt it. “Tesla has understood this and is offering solutions to help us achieve this,” he said.

Albertsen declined to detail what Tesla has done to mitigate Ivens’ EV losses.

Arval, the car leasing unit of BNP Paribas (OTC:), is now in talks with three Chinese automakers to buy electric vehicles after suffering losses related to the decline in Tesla’s value. When Tesla first began cutting prices last year, Arval told the automaker, “You’re really shooting yourself in the foot,” said Arval Deputy CEO Bart Beckers.

Arval leases about 170,000 electric vehicles from its fleet of 1.7 million vehicles, Becker said. He said Tesla is working to address repair and maintenance issues, but added that the automaker’s “new challengers” – Chinese electric vehicle makers – appear to be avoiding Tesla’s mistakes by focusing on keeping the resale values ​​of the cars high.

The automaker faces the same resale value problem as car rental companies. Hertz is selling off Teslas in the US market, while German rival Sixt has stopped buying them. Asked about the impact of Tesla’s price cuts, Sixt said lower residual values ​​of electric vehicles from Tesla and other brands cut its 2023 profit by 40 million euros ($42.7 million).

CRITICAL CLIENTS

Fleet customers are important in any car market, but especially in Europe, where firms often rent out large numbers of company cars to employees, partly because of the tax benefits associated with it. In the UK and 15 EU countries, car leasing and rental company purchases accounted for 44% of Tesla sales last year, according to research firm Dataforce.

Tesla’s fleet sales in these countries fell 2.3% in the first quarter, while the overall market rose 3.5%. Although fleet sales have fallen, leasing and car rental firms have grown to 49% of Tesla’s business in those markets.

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 in the first quarter, its first decline in four years.

The decline in fleet sales in these 16 European countries followed a 57% increase in 2023 compared to the previous year, according to Dataforce. According to the European Automobile Manufacturers’ Association, Tesla saw similar percentage sales growth across Europe.

Until recently, Tesla had a first-mover advantage, which meant European corporate customers had few alternatives to electric vehicles to meet domestic climate or EU emissions targets.

The situation is changing quickly. Chinese automakers including BYD are bringing low-cost electric models to Europe and are actively courting Tesla’s corporate customers, according to fleet managers and leasing company executives. Legacy automakers such as Volkswagen (ETR:) and BMW (ETR:) are also producing increasingly competitive electric vehicles.

“Pent-Up Frustration”

Tesla’s slow and expensive maintenance has become 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 give their names because they are actively trying to resolve problems with Tesla.

They say it takes too long to repair and costs much more than other cars, partly because of expensive parts.

Despite this, Tesla has satisfied customers.

Octopus Electric Vehicles, the car leasing arm of British energy company Octopus Energy, has about 5,000 Teslas among its roughly 15,000 electric vehicles. CEO Fiona Howarth said Tesla, as an electric vehicle pioneer, needed time to figure out its service operations and that legacy automakers were now facing similar problems with their own electric vehicles. She said Tesla’s resale value has been artificially inflated during the coronavirus pandemic and needs to be brought down.

“We have a really good working relationship with Tesla,” she said.

Lorna McAteer, fleet manager for a British energy company National Network (LON:) described a much more complicated relationship with Tesla. She collected data on repair costs and found that Tesla had repair costs three times higher than the industry average.

Other problems, McAteer said, include a cumbersome ordering system and vehicles arriving with defects. For example, she said, Tesla delivered several electric vehicles with warped windshields and refused to repair them under warranty.

National Grid has more than 500 Teslas in its 2,000-vehicle fleet. McAteer said she plans to propose that her company remove Tesla from its fleet if the problems are not resolved. Meanwhile, Tesla’s main Chinese competitor, BYD, is starting to supply cars to the National Grid.

McAteer said she pushed for a face-to-face meeting with Tesla officials in mid-April. During that meeting, the automaker promised to improve service and fix the ordering system, as well as hold additional meetings and create a road map to resolve outstanding issues, leaving McAteer with the feeling that “we finally have customer service.”

In the past, the automaker hasn’t responded, she said: “There have been years of pent-up frustration about fleets not being able to communicate with Tesla.”

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