Tesla Needs to Crack Europe’s $360 Billion Corporate Car Market
(Bloomberg Businessweek) -- Car buyers are showing increasing interest in Tesla Inc. models, and the employees at German software maker SAP SE are no exception. Europe’s largest tech company, like major corporations across the Continent, provides cars for company and personal use as an employee perk. And SAP lately has been getting dozens of requests for Teslas from its workers each month. But the company won’t buy them, saying Tesla’s lack of servicing centers near its Walldorf headquarters and other SAP facilities has fueled concerns that employees would take time off to deal with repairs if they were given the coveted electric vehicle. BMW AG and Daimler AG’s Mercedes-Benz—longtime fixtures on the company’s approved list—offer same-day fixes nearby, making their hybrid models the most popular plug-ins SAP provides.
Servicing teams “need to be there at short notice, and Tesla still has some work to do,” says Steffen Krautwasser, who manages SAP’s 17,000 cars in Germany. “The interest in Teslas is extremely high, but we simply can’t offer them at this point.”
While consumers and investors have turned Tesla Chief Executive Officer Elon Musk into a global celebrity, companies in Europe—which has become the largest market for EVs—aren’t flocking to Tesla’s cars. And their reticence is costing Musk some serious sales. About 60% of new-vehicle purchases in Europe are made through the corporate channel, including company cars offered as a perk (for which employees have certain fees deducted from their paycheck). The sheer size of the roughly €300 billion ($360 billion) corporate car market will play a key role in determining how quickly the combustion engine is phased out in favor of batteries across the region. Yet Tesla, which is building its first European factory near Berlin, with plans to begin production later this year, is almost absent from that sales channel. European automakers, including BMW, Renault, and Volkswagen, dominate.
Tesla’s much smaller servicing network, its refusal to offer bulk discounts, and a lack of long-standing sales relationships with Europe’s biggest companies have kept it far behind homegrown brands, which have decades of experience tailoring offerings to the massive corporate demand pool. Although Tesla is gaining popularity with private buyers, it accounted for only 0.3% of vehicles sold through the corporate channel in Germany last year, according to the country’s KBA vehicle authority.
Lackluster sales in the corporate car market could leave Tesla with excess production capacity in Europe, says Ferdinand Dudenhöffer, who heads the Center for Automotive Research at the University of Duisburg-Essen. The manufacturer in January cut the price of the Model 3 in Germany, Europe’s biggest car market, by about 7%, possibly pointing to concerns over lower-than-expected orders, he says. Any shortfall in European sales could only add to the global overcapacity Dudenhöffer expects for Tesla, risking pushing the company “into the red,” he says. “Then the stock price will look vulnerable.”
For Musk, winning over more European buyers is crucial if he wants to retain his yearslong dominance in EVs. While Tesla’s Model 3 was the bestselling electric car in the U.S. and China, Renault SA’s Zoe trumped it in Europe. The region overtook China as the world’s largest EV market last year, and local carmakers are investing billions in electrifying their offerings to keep the U.S. carmaker at bay. Volkswagen plans to at least double the share of its sales that are fully electric in 2021, with the high end of its target range suggesting it could come close to Tesla’s expected deliveries of at least 750,000 cars. In Europe, the German manufacturer already pulled ahead of Tesla in battery-EV sales last year, according to market researcher Jato Dynamics.
Europe’s corporate car sales rose by about a fifth over the past decade, with company buyers benefiting from generous subsidies including tax breaks, value-added tax rebates, and depreciation write-offs. In the region’s eight biggest markets alone, the aid is worth €32 billion a year, according to Transport & Environment, a Brussels-based researcher.
Only about 4% of vehicles bought by companies in 2019 (the most current data available) had a plug, but that figure is bound to increase, because Europe is intensifying efforts to green its auto fleet. France, Germany, and Italy were among the countries that hiked subsidies for battery-powered vehicles as part of pandemic stimulus programs in 2020, boosting EV adoption in an otherwise bleak year. BloombergNEF expects about 1.8 million hybrid and battery-only plug-in cars to be sold in Europe this year, about 40% of the global EV market.
Germany introduced a tax break last year aimed at greening the cars employers give their staffs. Larger companies, such as Siemens AG and Deutsche Bank AG, have online tools employees can use to customize their favorite models with just a few clicks. European employees still have to pay fees for their car perk—in France they typically pay 9% of the vehicle’s list price, spread over 12 months; in Germany, workers pay a monthly tax of 1% of the list price for a combustion engine car, which is deducted from their paycheck. Under the new German government rule, drivers of electric company cars will in most cases pay only a quarter of the fees charged to drivers of cars with a combustion engine. “That’s a very lucrative incentive, because employees can see it in their monthly paychecks,” says Marcus Weller, an analyst at German car dealer association ZDK.
Leasing companies including BMW’s Alphabet, Daimler’s Athlon, and BNP Paribas’s Arval are also expected to have a significant impact on the push for EVs, because many of their cars are sold as used after a few years. Arval plans to raise the share of electrified vehicles—fully electric, hybrid, and hydrogen cars—in its fleet to a quarter by 2025, from 8.2% last year. LeasePlan Corp., a Dutch company that manages 1.9 million vehicles in more than 30 countries, wants to achieve net-zero emissions for its fleet by 2030. Volkswagen’s financial-services unit is offering companies loans and leasing products to ease outlays in charging infrastructure.
Tesla’s biggest hindrance could be its lack of repair stations across the continent. The U.S. carmaker runs four service centers in Italy—in Bologna, Milan, Padua, and Rome. Stellantis NV’s Fiat has 1,300 such sites all over the country, and VW operates about 800. The situation is similar in France and England, where Tesla has just 10 and 13 facilities, respectively, according to its website.
Tesla argues the time its cars sit idle in repair shops is minimal because it utilizes remote diagnosis, wireless software updates, and mobile service crews. “Unlike vehicles with internal combustion engines, your Tesla does not require an oil change, spark plug or fuel filter replacement, or emissions tests,” the company says on its German website, where it also details government aid available to corporate EV buyers. In Germany that includes a cash bonus of as much as €9,000, an exemption of the vehicle tax, and free parking in selected cities. Tesla didn’t respond to a request for comment.
Tesla isn’t the first U.S. company to run up against Europe’s corporate car wall. Ford Motor Co. lagged European rivals until it established a servicing and sales network on the Continent. In Germany, Ford now sells the most units behind the country’s four domestic incumbents.
Tesla likely faces years of work before it can hope to reach that stage. For now, chemicals giant BASF SE won’t offer the American company’s cars to its more than 50,000 German employees because of Tesla’s patchy servicing network, says Ursula von Stetten, a BASF spokeswoman. When will that change? Teslas will be available “as soon as the appropriate infrastructure is in place,” she says.
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