European Car Market Grows, But Tesla Sales Decline

Despite Musk's expectation that Tesla's performance in the European market would be better in the second quarter than in the first, the latest data shows that Tesla is still struggling in Europe.

Data released by the European Automobile Manufacturers' Association (ACEA) on Wednesday shows that Tesla's new car registrations in Europe in April were only 13,951, a decrease of 2.3% compared to the same period last year, the lowest level since January 2023.

In contrast, the overall European electric vehicle market achieved a year-on-year growth of 14% in April. Tesla's shipments from its Shanghai factory have also declined.

In the earnings call for April, Tesla announced that its net profit in the first quarter fell by 55% year-on-year to $1.13 billion, and the operating profit margin further decreased from 8.2% in the fourth quarter last year to 5.5%.

Musk had said that in the second quarter, Tesla would get rid of the multiple negative factors in the first quarter, such as the disruption of Red Sea shipping and the suspected arson incident near the German factory.

However, Tesla's situation did not improve as he expected.

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In recent months, some countries, including Germany and Sweden, have stopped or reduced subsidies for electric vehicles, casting a shadow over the growth of electric vehicle sales in Europe.

In Germany, the largest automotive market in Europe, most brands have been impacted by the withdrawal of subsidy policies, but Tesla's performance last month was particularly weak.

In April, the registration of electric vehicles in Germany remained basically flat, while Tesla's sales fell by 32%.

In the UK market, Tesla's new car registrations in April fell by 25%, and the cumulative decline in the first four months of this year was as high as 14%.In addition to the challenge of declining sales across the European market, Tesla is also facing the ire of key customers—leasing companies. If not handled properly, Tesla's situation in the European market could further deteriorate.

As previously mentioned by Wall Street Journal, leasing companies account for nearly half of Tesla's European sales. While Tesla's frequent price reduction strategy has stimulated sales, it has also led to a significant decrease in the value of its vehicles, resulting in damaged profits for European leasing companies.

The business model of leasing companies involves purchasing new vehicles and then renting them to consumers. When determining rental prices, leasing companies consider the expected residual value of the vehicles, which is the estimated resale value at the end of the lease term.

The profitability of leasing companies largely depends on the realization of these residual values.

However, if the price of new vehicles in the market suddenly drops significantly, it will have a negative impact on the residual value of rented vehicles. At the end of the lease term, the actual resale price of these vehicles may be far lower than the initial estimate.

This reduction in residual value will directly lead to financial losses for leasing companies.

It has been reported that Tesla may offer special discounts to leasing companies, but these discounts could also further harm its profit margins.