TSLA's Fire Fighting. Q2 Earnings Affected?
Mr CEO fallen on hard times?
Living in Desperate Times?
Is Tesla feeling the heat and getting desperate?
Certainly, looks so from where I am.
Don’t just take my words for it, apparently Reuters thought so too. (see below)
Tesla is working to appease some European leasing companies after the automaker’s repeated retail price cuts tanked their fleets’ value.
Not to mention, its slow & expensive repairs service alienated their corporate customers.
According to Reuters interviews with (a) 9 major leasing & rental-car executives and (b) about 12 corporate fleet managers.
Tesla’s efforts included:
Unofficial discounts on purchases of new cars if they are in stock.
Efforts to address widespread service, repair and ordering complaints after years of ignorance.
What Happened?
In response to overall global softening in EV demand and rising competition, especially from Chinese EV maker $BYD Co., Ltd.(BYDDY)$.
Mr CEO decidedly cut retail price to bolster its sales.
As a result of Mr CEO’s action, it damaged the bottom lines of its biggest fleet customers in Europe, that accounts for nearly 50% of auto sales.
Leasing companies buy new cars and arrange leases calculated on how much they believe they can sell them for at the end of the lease.
The sudden price drops undercut the residual values, costing leasing firms money.
Leaseurope Feedback.
According to Leaseurope, Director General, Richard Knubben:
It is really bad for fleet buyers if the price of their vehicles keeps dropping.
Leaseurope is a leasing and rental-industry group representing national groups across 31 countries. They know their stuff.
Tesla is offering discounts to fleet buyers to make up for the value of their cars going down quickly.
The irony is because Tesla’s EVs residuals are dropping like flies, there are doubts the discounts offered are enough. (see below on falling Tesla prices)
At press time, Tesla did not respond to requests for comment.
Tesla’s falling resale values and fallout with fleet customers are industry knowledge.
Tesla’s damage-control campaign to address them has not been previously reported.
According to the grapevine, since mid-2023, Tesla offered unofficial end-of-quarter discounts on its Model 3 and Model Y by up to EUR 2,000 (US$2,134) for leasing-company purchases, subjected to stock availability.
Since late 2023, those unofficial discounts have been available all the time.
Other Leasing CEO’s Feedback.
Ayvens, CEO, Tim Albertsen said that:
While Tesla's customer service has gotten better, the value of Tesla cars has been dropping quickly and that is the problem.
Tesla knows this and is working on ways to help fix it.
However, CEO declined to elaborate on what Tesla has done to mitigate Ayvens’ losses on EVs.
Arval, Deputy CEO, Bart Beckers: (car leasing unit of BNP Paribas):
Is talking to three Chinese automakers about buying EVs after taking losses tied to declining Tesla values.
When Tesla first started cutting prices last year, Arval told the automaker: “You are really shooting yourself in the foot,” said .
Last year, when Tesla began reducing car prices, a source at Arval, reportedly feedback to Tesla that they were hurting their own business.
Putting things into context
Arval is a leasing company with 1.7 million vehicles, leases 170,000 electric cars (EVs).
Tesla is fixing repair issues, but Chinese EV makers are focusing on keeping car values high, unlike Tesla.
Rental Car companies woes.
Tesla resale values are hurting rental companies too.
$Hertz Global Holdings, Inc.(HTZ)$ is selling its Tesla EVs.
$Sixt AG(SIXGF)$ stopped buying Tesla altogether. Lower resale values, for Teslas and other electric cars cost Sixt €40 million ($42.7 million) in 2023.
Critical customers
In Europe, companies leasing cars for employees (fleets) are a big part of the car market, thanks to tax breaks.
According to Dataforce, these companies bought 44% of Teslas sold in the UK and 15 European countries in 2023.
However, Tesla's fleet sales in those areas actually dropped by -2.3% in Q1 2024, even though overall market grew by +3.5%. (see below)
This comes as Tesla faces a global slowdown after years of fast growth.
Their deliveries worldwide fell by -8.5% in Q1 2024, marking their first decline in four years.
Tesla's sales to fleets in 16 European countries dropped in Q1 2024, after a strong year of growth in 2023 (up +57% according to Dataforce).
This drop happened despite overall European car sales rising.
Tesla used to be the only real option for European companies looking for electric cars.
This helped them grow quickly.
However, things are changing fast.
Chinese car companies like BYD are now selling cheaper electric cars in Europe and are trying to win over Tesla's business customers.
Traditional carmakers like $Volkswagen AG(VLKAY)$ and $Bayerische Motoren Werke AG(BMWYY)$ are also making electric cars that are getting better and better, posing an even bigger threat to Tesla.
Frustrated Customers.
Tesla has faced challenges with its European leasing partners due to slow and costly service.
According to interviews with corporate fleet managers, Tesla’s repairs take too long and are more expensive than other vehicles, partly due to pricey parts.
Despite this, some fleet customers remain satisfied.
For instance, Octopus Electric Vehicles, a UK energy firm’s car-leasing division, has around 5,000 Teslas among its 15,000 electric vehicles.
CEO Fiona Howarth acknowledges that Tesla needed time to improve service operations as an EV pioneer.
However, Lorna McAtear, fleet manager at UK energy firm National Grid, has encountered rockier relations.
She found Tesla’s repair costs to be triple the industry average.
Other issues include a cumbersome ordering system.
Defective EVs being delivered. Eg. warped windshields.
National Grid, which has over 500 Teslas in its company-car fleet, may drop Tesla unless these problems are addressed.
Meanwhile, rival, BYD, is delivering cars to National Grid.
McAtear recently met with Tesla representatives, who promised service improvements and a fix for the ordering system, leaving her feeling hopeful about improved customer service.
My viewpoints: (mine only)
Looks like the price slashing has come to bite Tesla’s behind.
What started in early 2023 to bolster falling demand for its EVs, the repercussion cannot be more apparent now.
With a few EU leasing companies willing to explore made-in-China EVs, don’t be surprised this trend may catch on and spread like wild fire especially with quality control (QC) issues synonymous with Tesla.
Perhaps the most conclusive signs that all is not well in Teslaville is to revisit its recent Q1 2024 quarterly earnings - “Free Cash Flow” (FCF).
For Q1 2024, it has slipped into deficit of -$2.53 billion.
Looking back, it was strange that none of the media talked about Tesla’s free cash flow woes, wonder why?
This probably explains why Mr CEO is eager to “fire” staff at first sign.
In 2024, Tesla reportedly laid off 10% of its staff (approx. 14,000 workers), as it grappled with slowing sales.
April 2024: An internal memo revealed that Tesla would lay off more than 10% of its global workforce due to falling sales and an intensifying price war for electric vehicles (EVs).
06 May 2024: Tesla announced its 4th round of layoffs. Latest cuts affected engineers, HR, and service advisers.
It may look “glamourous” to have Gigafactories scattered across the global (US - New York, Nevada, Texas, China - Shanghai, Germany - Berlin), churning out EVs at breakneck speed (ignoring quality issue).
But when things turn for the worse, the downside effects are multiple times worse because the burn rate is scary.
Is the remedial action to win back EU fleet customer is a case of too little too late ? Will its Q2 2024 fare far worse than Q1’s earnings, looking at things falling apart !
Must Read: Click on below titles to access. Give a like & help to repost ok. Thanks.
Do you think Tesla will be able to win back its EU fleet customer ?
Do you think BYD will be able to make inroads and win over EU fleet customers ?
If you find this post interesting, give it wings! ️ Repost and share the insights ?
Do consider “Follow me” and get firsthand read of my daily new post. Thank you.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Elon keeping it quiet on their secret A.I project is going to save it to roast the shorts later
Too many uncertain factors for $Tesla Motors(TSLA)$
Tesla is great but not so soon
tsla needs to wake up!!!
Good read to this
Pls help to "Re-post". Tks! Rating is important (to me).
Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!
Great article, would you like to share it?