(Bloomberg) -- Tesla Inc.’s frequent prices cuts are “poison” for the used electric-car market , which is holding up better for manufacturers that handle discounting through dealers, according to global lease firm Ayvens.

“Having a list price that goes up and down is poison for residual values,” the fleet manager’s Chief Executive Officer Tim Albertsen said Thursday. “It’s quite damaging for the market, and I think for the long term, it’s damaging for Tesla the way they do it.”

Tesla spent much of 2023 slashing prices, including a nearly 30% cut to the sticker of the top-selling Model Y in just over three months. Meant to stoke demand, the practice has devastated used-car values, prompting rental firms Hertz Global Holdings Inc. and Sixt SE to ditch Teslas from their fleets as depreciation is among their biggest risks to manage.

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The US carmaker’s practice of announcing reductions via its website as part of its direct-to-consumer sales model are a particular problem, the Avyens CEO said, whose company manages about 3.5 million vehicles, including more than half a million EVs. The cuts immediately flow through to residual values, Albertsen said, which isn’t the case for carmakers that sell through dealer networks.

“Tesla is a difficult animal,” he said. The company is “very keen to keeping working with us and all the bigger players in the market so they are coming up with solutions.”

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While other carmakers like Volkswagen AG likely have offered even deeper EV discounts, this transpires during individual sales conversations, Albertsen said, making effects on used cars more manageable. 

The slump in secondhand EV values is outstripping declines for combustion-engine vehicles. While this makes used EVs more affordable, it’s painful for early adopters and has negative consequences for the car industry, including making new leases more expensive for consumers.

The issues with pre-owned cars — in addition to higher energy prices and insurance premiums — is undermining the assumption that EVs would be cheaper to run, a central claim in stoking demand. As buying incentives are being rolled back, adoption rates have started to slow. 

The transition to electrification is “structural” but the path “may not be as linear as initially expected,” Albertsen said. 

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