Tesla's Price Cuts Impacting Car Values, Leading to Compensation for Leasing Firms
Carmakers are compensating leasing companies for the declining value of used electric cars due to Tesla's price cuts.
Compensation for Leasing Companies
Carmakers have begun compensating leasing companies for the sliding value of used electric cars as Tesla’s price cuts rip through an industry that must sell more EVs or face hefty fines.
Ayvens, the biggest multi-brand leasing firm, already has received checks in recent weeks to make up for slumping prices, according to Chief Executive Officer Tim Albertsen. Leasing companies are demanding concessions from EV makers, including agreements that manufacturers will buy back vehicles, to protect against further erosion in the $1.2 trillion second-hand car market.
Impact on Leasing Firms
Prices for used EVs plummeted last year as weakening demand for new battery-powered cars prompted Tesla to slash sticker prices, forcing others to follow suit. The moves are reverberating through leasing firms, such as Europe-focused Societe Generale SA’s Ayvens and BNP Paribas SA’s Arval, which serve as middlemen in the corporate car market that accounts for roughly 60% of sales in the region.
“Manufacturers today need to keep selling EVs,” Albertsen said during the company’s earnings call this month. “We then need some kind of protection from the manufacturers in terms of their future pricing.”
Leasing Agreements and Risk Mitigation
Typically, leasing agreements are based on the estimated used value of a vehicle at the time the contract expires, with payments designed to cover depreciation. If the value drops more than expected, as it has recently for EVs, the leasing companies lose money on those cars.
A range of carmakers operate leasing arms, like Volkswagen AG Financial Services, Stellantis, and Credit Agricole’s Leasys or Mercedes-Benz Mobility. Ayvens, formed from the 2022 merger of ALD Automotive and LeasePlan, has more than half a million EVs in its fleet. The company is in talks with carmakers to cover the risk of depreciation — such as agreements to re-lease well-maintained cars a second or third time — Albertsen said last week.
