Daily Management Review

Tesla Is Repairing Damage And Offering Discounts To Fleet Purchasers In Europe


Tesla Is Repairing Damage And Offering Discounts To Fleet Purchasers In Europe
Tesla is making an effort to win over certain leasing businesses in Europe after the carmaker's costly repairs and frequent reductions in retail prices destroyed the value of their fleets and alienated corporate customers.
As reported by Reuters interviews with nine bosses from major leasing and rental-car companies, as well as twelve managers of corporate fleets, the initiatives consist of informal discounts on buys of new cars if they are in supplies, as well as efforts to address widespread service, repair, and ordering complaints after years in which fleet managers and leasing firms say Tesla has ignored those problems.
Tesla's retail price reductions were an attempt to increase sales in the face of growing competition, particularly from Chinese EV manufacturers like BYD, and a slowdown in the worldwide market for electric vehicles.
However, that hurt the bottom lines of its largest clients in Europe, where fleet purchases account for over half of all car sales.
Leasing businesses purchase new vehicles and set up leases based on what they think they can get for a sale at the conclusion of the lease. Unexpected price reductions reduce such residual values, which costs leasing companies money.
Leaseurope, a leasing and rental industry body located in Brussels that represents national groupings in 31 countries, claimed that there is "nothing worse" than a fleet buyer's assets consistently losing value.
"Tesla is now actively telling our members: We can give you discounts and compensate you," Knubben stated. "But Tesla's residuals have dropped so fast, I'm not sure the discounts they're offering are enough."
Requests for comments from Tesla were not answered.
Tesla's damage-control strategy to address its declining resale values and conflicts with fleet customers is well known, but it hasn't been previously revealed.
Speaking under anonymity because he was not authorised to publicly comment on Tesla, a top executive at a major European auto leasing company revealed that, beginning 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, provided those cars were in stock.
He said that the savings had always been accessible since late last year.
The CEO of Ayvens, the biggest auto-leasing firm in Europe with 3.4 million vehicles, 10% of which are electric vehicles, Tim Albertsen, stated that while Tesla's service has improved, the company's declining resale prices have been detrimental. "Tesla has understood that and is coming with solutions that help us with that," he stated.
Regarding Tesla's efforts to lessen Ayvens' losses on EVs, Albertsen declined to provide any details.
After suffering losses due to falling Tesla prices, Arval, the BNP Paribas auto leasing division, is currently in talks with three Chinese automakers about purchasing electric vehicles. "You are really shooting yourself in the foot," Arval Deputy CEO Bart Beckers warned Tesla when the carmaker initially started slashing pricing last year.
Arval has a fleet of 1.7 million vehicles, of which 170,000 are leased, according to Becker. While he acknowledged that Tesla is trying to address repair and maintenance issues, he also pointed out that Chinese electric vehicle manufacturers, the company's "new challengers," appear to be learning from Tesla's failures by emphasising good automobile resale values.
The carmaker and rental-car firms have similar issues with regard to resale value. In the US market, Hertz has been offloading Teslas, while rival German company Sixt has ceased purchasing them. When asked how Tesla's pricing reductions affected its profitability for 2023, Sixt replied that decreased residual values on EVs from Tesla and other brands had a 40 million euro ($42.7 million) impact.
In the automobile industry, fleet customers have significant value, particularly in Europe where companies frequently lease a large number of business cars for their employees due in part to associated tax benefits. According to market research firm Dataforce, 44% of Tesla sales in the UK and 15 other EU nations were from leasing and rental-car business purchases last year.
While the market as a whole increased by 3.5%, Tesla's fleet sales in those nations decreased by 2.3% in the first quarter. Tesla's market share of leasing and rental vehicle businesses increased to 49% in those areas, despite a decline in its fleet sales.
Following a protracted era of rapid expansion, Tesla's sales and earnings are declining internationally. The carmaker said that worldwide deliveries fell by 8.5% in the first quarter, marking the first dip in the previous four years.
According to Dataforce, fleet sales in the 16 European nations fell in 2023 after rising by 57% the year before. Based on total sales in Europe, Tesla had the same percentage gain, according to the European Automobile Manufacturers Association.
Until recently, European corporate clients had limited options for electric vehicles (EVs) that could fulfil EU emissions requirements or internal climate goals due to Tesla's first-mover advantage.
That is quickly changing. Fleet managers and executives from leasing organisations report that Chinese manufacturers, such as BYD, are aggressively chasing Tesla's corporate clients by bringing lower-cost electric cars to Europe. Traditional manufacturers like BMW and Volkswagen are also making EVs that are getting more and more competitive.
According to Reuters interviews with nearly a dozen corporate fleet managers, slow and pricey Tesla servicing has been another bone of contention with European leasing businesses and their clients. The majority choose not to reveal their identities as they are actively working to fix issues with Tesla.
They claim that expensive parts are one reason why repairs are too expensive and take too long compared to other cars.
Tesla does, however, have happy fleet users.
Out of around 15,000 EVs, Octopus Electric Vehicles, the car-leasing division of UK energy company Octopus Energy, owns about 5,000 Teslas. According to CEO Fiona Howarth, legacy manufacturers are currently facing comparable difficulties with their own EVs, and Tesla, as an EV pioneer, required time to hammer out service procedures. According to her, the artificially inflated Tesla resale values during the coronavirus outbreak needed to drop.
"We've had a really good working relationship with Tesla," she stated.
The fleet manager of National Grid, a UK energy company, Lorna McAtear, spoke of many rocky relationships with Tesla. Her data collection on repair expenses has revealed that Tesla's costs are three times higher than the industry average.
McAtear mentioned that there are further issues such as a laborious ordering process and automobiles that arrive with flaws.
She mentioned that some electric vehicles (EVs) that Tesla supplied had warped windscreens, and the company refused to restore them under warranty.
Among its 2,000 business cars, National Grid owns more than 500 Teslas. According to McAtear, if the issues are not resolved, her business intends to suggest removing Tesla from its lineup. In the meanwhile, BYD, Tesla's main Chinese competitor, has begun supplying National Grid with vehicles.
According to McAtear, she insisted on having a face-to-face meeting with Tesla officials in the middle of April. In addition to future meetings and a "roadmap" for resolving unresolved issues, the carmaker committed during that meeting to enhance service and rectify the ordering system. This gave McAtear the impression that "we finally have customer service."
She said: "There have been years of pent-up frustration that fleets can't talk to Tesla." The carmaker has previously been unresponsive.