Retail customers may approve of Tesla’s habit of announcing sudden, steep price cuts for its electric vehicles. The same cannot be said for corporate customers like leasing and rental companies, which rely on cars holding their value on the resale market.
We saw it in the U.S. with Hertz, which had to write down much of its Tesla fleet after headline price cuts hit the second-hand market, forcing the business into an embarrassing U-turn.
Now, Elon Musk’s EV giant is trying to avoid the same thing happening in Europe, where leasing companies account for half its sales, and where it recently engaged in aggressive price cuts both to compete with Chinese automakers including BYD and to get the jump on native automakers like Volkswagen.
Tesla is embarking on what is being described as a “damage control” mission to placate those customers before they go the same way as Hertz, Reuters reported.
The automaker is offering steep “unofficial discounts” to corporate customers—who have also complained of poor service from Tesla and prohibitive repair costs—for cars that are in stock, the publication reports, citing several rental companies executives and corporate fleet managers.
An old headache
Reports of carmakers offering their disgruntled leasing customers discounts aren’t new.
In February, the CEO of global leasing firm Ayvens said he had already received checks from car companies to compensate them for their falling fleet values. Leasing companies have demanded concessions from EV makers they accuse of cutting into their margins, including buying back cars at the end of their lease.
“Manufacturers today need to keep selling EVs,” Ayvens boss Tim Albertsen said during the group’s earnings call. “We then need some kind of protection from the manufacturers in terms of their future pricing.”
It’s a familiar problem for Tesla, after witnessing the souring of a once-pivotal agreement with U.S. leasing group Hertz amid plummeting resale values and falling interest in EVs.
Hertz announced plans in 2021 to buy 100,000 Tesla vehicles, one of several boosts for Musk’s company that helped its valuation soar amid growing demand for EVs.
But it proved a disastrous bet for Hertz, which had to cope with falling resale values as demand for EVs dipped last year and the impact of Musk’s price cuts took hold. In fact the unexpected depreciation for EVs proved to be a $195 million problem for the company.
It was enough to mark the end of Stephen Scherr’s stint as the rental group’s CEO. He announced in March that he would be stepping down from the group, following steep losses from its EV unit.
Tesla faces the challenge of regaining confidence in Europe before the same thing happens there, where it has the added issue of Chinese EV competition to think about.
Leasing companies are looking at the prospect of switching allegiances to those Chinese EV makers, whose ultra-cheap prices have already bamboozled European automakers.
BNP Paribas-owned Arval announced a European partnership in February with Chinese EV giant BYD, for example.
Arval’s CEO Bart Beckers accused Tesla of “really shooting yourself in the foot” last year as the EV maker embarked on steep price cuts to compete with the likes of BYD.
The problem for Tesla is that there is no easy solution to its strategic dilemma. If it cuts prices, it hurts the leasing half of its customer base, but if it doesn’t cut prices, then it will deter the other half, would-be retail buyers. Its hope will be that flagging demand will begin to pick up, and the era of cheap Chinese vehicles flooding the market will end, thereby allowing it to satisfy both groups.
