Tesla Unveils New Finance Product

http://www.teslamotors.com/about/press/releases/tesla-unveils-revolutionary-new-finance-product

by antr • 13 years ago

438 256 13 years ago

teslamotors.com

josh2600• 13 years ago

Cool. This coupled with Tony's order in Vegas means a lot of good news. When you add in profitability; that's nuts.

Quite the start to April for Tesla.

sounds• 13 years ago

More info if you don't know Tony :-)

http://techcrunch.com/2013/04/02/downtown-project-buys-100-t...

medell• 13 years ago

Thanks for that. Nice find.

zwass• 13 years ago

This ~sounds~ really great. Is it actually?

I've never bought or leased a car, and I'm wondering how this compares to the terms normally offered.

dripton• 13 years ago

Residual value on luxury cars is typically poor, because part of the justification for the price premium on a luxury car is being seen in something impressive, and a 3-year-old car is no longer so impressive.

So saying "for the same residual value percentage as the iconic Mercedes S Class, one of the finest premium sedans in the world" is honest but kind of deceptive. You'd much rather have the same residual value percentage as the much less expensive Jeep Wrangler.

This is basically a lease, phrased as a sale with the option to sell back, to take advantage of incentives that governments give to buyers but not lessees of electric cars. A nice option, but hardly worthy of the breathless marketing hype.

hkarthik• 13 years ago

Residual value on luxury cars is mainly bad because the maintenance costs on a luxury brand cars quickly go into the stratosphere after the factory warranty runs out. When the warranty is running out, you're hitting time for new tires, brakes, etc. It all raises the cost of a second hand BMW to be almost as high as a brand new one.

The way to "hack" this is to either stop going to the dealer after your luxury car goes out of warranty and find an independent mechanic or work on your car yourself. Both have their own drawbacks, but it's generally what you see most long term luxury car owners doing.

phreanix• 13 years ago

Please correct me if I'm wrong, but a quick google tells me residual value is about 60%?

boyter• 13 years ago

Probably correct. Residual value of pretty much any luxury car is terrible.

superchink• 13 years ago

Looks like it's 43%, according to their document here: http://www.teslamotors.com/sites/default/files/pdfs/tesla-re...

SandersAK• 13 years ago

This is a high risk high reward gamble by Tesla. If people take this offer, they are basically getting to lease to own.

Musk is betting that the car will be so good that people will want to keep it.

If it's true, then buyers are getting a great deal and Tesla wins with a lot of cars on the market, and in turn, a lot of leverage to get their charging stations all over the place.

If it's not true, then it all goes to hell over a year period where people are returning them and Tesla is buying them back.

Musk is basically saying "there is nothing better than a Tesla, and I am willing to bet the farm on it."

2arrs2ells• 13 years ago

"Musk is betting that the car will be so good that people will want to keep it."

Or that Tesla can sell "certified pre-owned" models for > the cost of the buyback.

notahacker• 13 years ago

True, but if owners are looking to return their Teslas en masse after 36 months the residual value will be a little less than the 43% they're apparently guaranteeing here.

It's not just a hedge against you ending up with a dud car either: you're also protected from a perfectly adequate '13 model's value being driven down by a new generation of Teslas which are drastically better (or better value). That's a worthwhile guarantee for the early-adopter of a physical product in a rapidly evolving market

Expect the most dramatic innovations from Tesla to come in 2017 and beyond then... :-)

shin_lao• 13 years ago

It's not a problem if people change their car for a new Tesla model when reaching maturity.

Also as another HNer remarked, don't forget there is probably a second hand market.

tc• 13 years ago

They're bundling an ordinary car loan with a put option, and Musk is personally guaranteeing the put.

Elon Musk is great. He's always all-in.

mikemoka• 13 years ago

Impressive, he has passion, vision and determination, he is truly a great entrepreneur, maybe the boldest of these times.

gnrlbzik• 13 years ago

that dude just keeps on pushing things... amazing

peterhajas• 13 years ago

Both Tesla and SpaceX receive heavy government subsidy. Tesla is not operating at a profit once government subsidies and tax breaks are removed.

I do not consider significant reliance on the state for funding the mark of a great entrepreneur. Musk has a bold vision, and the tenacity to execute on it, and that is commendable. But not without significant aid.

hkmurakami2• 13 years ago

A positive corollary is that this kind of consistent, push the envelope behaviour by the founding CEO and the company as a whole draws other ambitious people to the company.

Not only is this story a great business and strategic move, it has an added bonus of marketing/PR/goodwill + hiring benefits.

There's probably a lot we can all learn from the kind of decisions/announcements that are continuously being made from Elon Musk and Tesla.

codex5• 13 years ago

You're kidding, right? They're making the best of a bad situation. They'd love to have a normal leasing program like all other car companies, but they can't--they cannot finance leases themselves and no bank wants to risk losing money reselling the car at the end of the lease. The best they can do is offer to buy the car back at 40% of the purchase price in three years--and you have to take out a five year loan, put $10K down, and get that $10K back one year later, with none of the lower monthly payments of a normal lease. This is strictly worse than the financing options from every other manufacturer.

klochner• 13 years ago

Is he putting his personal finances behind that personal guarantee?

ParkerK• 13 years ago

Some of it is most likely, yes. He's not afraid to fund his own projects, the man has passion

MikeCapone4• 13 years ago

I was on the conference call. He basically said that it was guaranteed by all his assets even if Tesla was somehow to disappear.

vl4• 13 years ago

>loan with a put option

But this article is really light on details:

1) Is put option available without the loan?

2) Is it available for longer than 36-month period?

If I decide to buy Tesla, it's unlikely I'm going to be replacing it in 3 years, more like 6-8 years. And I think that there is a good change that in 6 years resale value will be 0 - with more advanced battery tech available and with cheaper models around, and with old battery Model S may turn out to have no value in 6 years. So this kinda stops me from considering it.

stevewilhelm• 13 years ago

As you pointed out, given how fast electric vehicle technology is changing, it seems unlikely the typical Tesla S owner would want to own one for more than three years.

joncooper2• 13 years ago

There is no reason why this structured financing entity would sell a put (taking on a liability) without an offsetting asset, the loan receivable. Nobody wants to be in the cash and carry downside vol business with an unhedgeable underlying.

scragg2• 13 years ago

The offer is available between 36 and 39 months. http://www.teslamotors.com/sites/default/files/pdfs/tesla-re...

paul_f• 13 years ago

Elon Musk is such a great entrepreneur, he could probably make a fortune selling cologne. They could call it, um, well, I'm sure they'll think of something.

kevincennis• 13 years ago

I see what you did there.

nhangen2• 13 years ago

Except for the fact that the 'monthly payment' is a lie based on fudging the numbers Groupon style. My opinion of Tesla has gone down after reading this and the fine print.

cjensen• 13 years ago

On the plus side, they have a calculator which lets you run the numbers yourself: http://www.teslamotors.com/true-cost-of-ownership Using that, I got $1K/month for me for the lowest end Model S.

On the minus side, the initial values in the calculator are heavily shaded towards Tesla. Who spends 15 minutes at a gas stop? Using the average cost for electricity instead of the marginal cost?

Bromskloss2• 13 years ago

A put option for what?

Shivetya• 13 years ago

Last I checked the residuals on S class Mercendes were in the low forty percent. Throw in the funny math needed to get your drive costs down to the five hundred dollar amount and I get less impressed by the minute.

Then to top it off, all with my money too boot! So for everyone who can afford a one thousand dollar monthly lease; before taxes; they get my help to pay for it.

Sorry, he is all in with our help. That isn't exactly courageous. He wants to capitalize on that tax credit before the money ends up elsewhere.

Look, I am all for having an electric car do well, but I would much rather finance the world of Leafs and similar affordable cars than a luxury vehicle to people who could make the payment regardless. People on sites like this bitch up a storm all the time about subsidies to various businesses but somehow this one gets a pass.

MRSallee2• 13 years ago

> Look, I am all for having an electric car do well, but I would much rather finance the world of Leafs and similar affordable cars than a luxury vehicle to people who could make the payment regardless.

Nissan Leaf, average owner income: $125,000 http://www.greencarreports.com/news/1049202_just-who-is-a-ty...

Chevy Volt, average owner income: $175,000 http://autos.aol.com/article/why-the-chevy-volt-is-attractin...

hkmurakami2• 13 years ago

The model S has captured people's mindshare and has increased publicly perceived legitimacy of electric vehicles in ways that the Leaf or Volt weren't able to. Its success and continued success is important in promoting and achieving the kind of infrastructure support and economies of scale needed to take EVs to the next stage and beyond.

To that end, even though the current state of Tesla and Model S may not be picture perfect, its success is certainly more desirable than its failure, particularly given that both its Nissan and GM counterparts have basically flopped in people's minds.

ricardobeat2• 13 years ago

Tesla has openly stated their end goal is to sell an EV in the mass-market price range. The Roadster and model S are steps towards that goal.

edouard12345672• 13 years ago

The best place to invest your money including tax dollars is in the company with the highest chance of success. For many reasons I believe Tesla will disrupt the car industry and lead the transition to making the electric car the new standard : amazing founder, 100% focused on the electrical car, the best technology (with a true viable range),a good financial situation, good early traction and a sexy car!

bneises• 13 years ago

http://www.ted.com/talks/elon_musk_the_mind_behind_tesla_spa...

Here Elon speaks at TED. Somewhere in the talk he explains the reasoning behind the more expensive vehicles at this moment. (spoiler: He plans on getting less expensive, less elegant versions on the market, with the help of these more expensive versions.)

drchaos• 13 years ago

Claiming that getting a tax credit is equivalent to taking "your" money is a totally absurd notion. Neither it is your money, because you didn't earn it in the first place (the person receiving the credit did), nor would eliminating the tax credit lead to you having to pay less taxes - the government would just be spent the money for other useless crap instead.

jcampbell13• 13 years ago

This type of loan used to be quite common but for a completely different reason. Prior to 2005, in many states the owner of the vehicle could be held liable for any damage caused by the vehicle (vicarious liability laws). With a lease, the credit company holds the title, thus for a period of several years, NY and NJ residents were forced into balloon/option loans instead of traditional leases.

It is really interesting to see balloon/option loans coming back, but for a different reason.

As far as I know, no bank does leases and only the captives do them. In this case, you owe wells fargo for the full amount of the loan, but Tesla and Musk are personally guaranteeing to buy the car back. A clever way to create a lease product backed by a company that won't do leases.

jstalin• 13 years ago

And I, who can't afford one even with the super awesome creative financing, get to subsidize those who can afford it with my taxes. Awesome.

lawnchair_larry• 13 years ago

What you're doing is subsidizing the technology. Without these incentives, it is more difficult for the Teslas of the world (of which there is really only one) to become viable and advance this technology. If Tesla wins here, we all win. It's just that the well off get to play with it first. That's not so bad to me. I've got a long list of areas that my tax dollars don't belong before this is a concern.

cantankerous4• 13 years ago

The flip side to this lament is that those who can afford it generally are subsidizing it a bit more than those who can't. More in taxes, and they actually buy the product, directly subsidizing it.

meepmorp• 13 years ago

I'd rather subsidize technology that's going to make our lives more sustainable in the future, than continue to cover the externalities for gas driving car owners.

SilasX2• 13 years ago

But I don't understand ... if he's personally guaranteeing the put, why is the partnership with the two huge banks necessary? Aren't they just an interchangeable loan provider in this?

jcampbell13• 13 years ago

> why is the partnership with the two huge banks necessary?

The banks are providing: 1) cash 2) loan origination and servicing.

Tesla doesn't have a cool $1B in cash laying around to make 15,000 car loans. The banks do as they lend from customer deposits. Tesla needs the cash immediately to buy more parts / pay employees.

Also, Tesla doesn't have a team of people that know how to review and check credit. Nor do they have call centers to remind people to make their payments, and if they can't arrange a repossession.

alexscheelmeyer• 13 years ago

Because Tesla do not have the privilege of printing money like banks do. Banks do not directly loan out money from depositors, they keep that money and print(punch in numbers in a computer) 10x that amount for loaning out.

That is a powerful privilege and the reason why it is smart to partner with a bank, even if you have money to spare.

MikeCapone4• 13 years ago

Tesla has released an official video of Musk explaining the broad strokes of the financing plan:

https://www.youtube.com/watch?v=twC1d-HEfJw&list=UU5WjFr...

tokenadult2• 13 years ago

Lee Iacocca used to be called a great entrepreneur for some of the same specious reasons.

damoncali2• 13 years ago

Not exactly. They're recreating a lease in a way that subverts the tax code. Clever. I wonder if the government will allow it to continue.

bishnu• 13 years ago

Guaranteeing the residual value of a Mercedes S Class seems like a huge, huge gamble to me. Given the relative technological rate of change for electric cars vs internal combustion engines, doesn't this have the potential to be a huge financial hit for Tesla?

dasil003• 13 years ago

Well look at it this way. If they can't ramp up adoption they're done sooner than later anyway. If they're selling a lot more cars in the future, they can eat a significant loss on today's numbers.

fnordfnordfnord2• 13 years ago

Mercedes S-Class have terrible resale value vs purchase price. Should be an easy mark to hit.

joncooper2• 13 years ago

This is the most salient point here. It seems like a ballsy move but is in fact much less so given you're benchmarked to a car with what is probably bottom-10% residual.

crapshoot1012• 13 years ago

As someone pointed out up thread, they aren't guaranteeing the value - they're guaranteeing the % of value / original sales price, which is unlikely to suffer. In other words, if there are huge technology improvements in the S Class, you'd pay for it up front AND in the used car price (sure, the curve might be slightly different, but if anything, may be steeper).

phillco• 13 years ago

Here's a page on their website that lets you figure out what goes into the $500/month figure: http://www.teslamotors.com/true-cost-of-ownership

Parts are a little surprising (e.g. it assumes your time is worth $100/hour).

coob• 13 years ago

Also goes up a whole bunch if you take off the business tax exemptions…

blinkingled• 13 years ago

If you cut through the questionables - the cheapest model for "All other states" runs $893/mo for 10k miles per year and $4 average fuel cost per gallon. With that I think the only good thing about this offer is they will buy back the car from you after 36 months?

tptacek• 13 years ago

Yeah, that topline number is very sketchy. My billable time is worth much, much more than $100, but it's not fungible so that I could earn more if I never stopped at the gas station, or drove in a (nonexistent here) carpool lane. Similarly, I actually (co-)operate a business with significant cash flows with tax obligations in multiple states and there is probably no way I'd mess around with a "business tax deduction" for a luxury car. The starting points for average MPG look low. The average gas price looks high.

Even with the extremely optimistic numbers Tesla comes up with, this was still a luxury; without them, it's a luxury I'd be embarrassed about.

ivankirigin• 13 years ago

If you drive the estimated yearly amount (15K miles) for the term of this ~lease you'll be over their 36K limit.

Kinda funky numbers for sure, but it is basically marketing. This is as honest as any car commercial.

binarycrusader• 13 years ago

Well, considering they're based in California, have you seen the labor rates many dealerships charge for car repairs? Try $300+/hr for "routine" maintenance.

If you're talking about the car owner's time, then perhaps, but given the price of the car, it's likely that whoever is buying it makes close to $100/hr (or possibly when combined with their financial partner).

ricardobeat2• 13 years ago

That's a reasonable assumption for people buying a US$50k+ car.

jccooper2• 13 years ago

More realistic numbers (and w/o exemptions and "time saved") and I get $974/mo. for the 60 kWh model. Which is, well, an expensive car; around a BMW 7-series lease cost. But BMW sells plenty of those, and so can Tesla. But telling me it's a $500/mo car? That's too much.

bradleyland2• 13 years ago

I hate to split hairs, but $974 is a very low lease payment for a 7-series. You could get there if you ordered a zero-option car and got the highest discount you can (around 7%). More realistically, the Tesla S payment compares favorably to a well equipped 5-series, which is the car they targeted.

I also agree that it's non-sensical to pitch this as a $500 car. The numbers required by their calculator to reach that level are absurd. For example, a 535i gets 20/24/30 mpg (city/combined/hwy). Tesla's calculator starts at 19 MPH. That's silly.

makomk2• 13 years ago

It doesn't just assume that your time is worth $100/hour, it also assumes that you'll never make any trips in the Model S that are long enough to need the Supercharger stations. Just one or two long trips a month would be enough to wipe out the claimed time savings from not having to refill your gas tank.

rdl3• 13 years ago

It works out for me as near-zero cost for a Performance.

30k miles/yr driven. ~20k in the Bay Area, ~10k on road trips (where Superchargers would be nice)

$5 gas, $0 electricity cost (assume charging at work) 60 minutes/day savings on commute, which is the big thing. Most of the East Bay is HOV-3, and with 2 people in the car, still no HOV access. It easily would save 20-30 minutes twice a day. On 101/237, I'm usually 1 person when I want HOV-2 access. Opening up 5-9am and 3-7pm everyday with time savings would be a huge plus.

The cheaper solution to this is to get a 2-seat gasoline car or a Leaf, though. The even faster solution is a motorcycle, but factoring in risk of death/injury on a motorcycle in rush hour on 580/80/101 and it's not worth it.

joshfraser• 13 years ago

It's worth noting that the $100/hr part is not included in the default calculation.

jmharvey2• 13 years ago

The time spent refueling calculations seem a little odd. Do people really spend 15 minutes per gas station fill-up? I feel like my fill-ups (including the detour to the gas station) take a lot less time than that.

And the Tesla calculation completely ignores the other side of the ledger: the time spent plugging and unplugging your car. Even if it only takes 30 seconds to plug it in and 30 seconds to unplug it, that adds up to half an hour per month, not much different than the time spent going to the gas station.

archon• 13 years ago

So you own it technically, but they're obligated to buy it back after 36 months. Since you own it technically, you get the federal/state tax benefits.

Seems like this whole scheme will unravel as soon as those tax credits die out, which they will.

ConstantineXVI• 13 years ago

No doubt. But they're likely to get plenty of Teslas on the road in the meantime, which is all they need: awareness that Tesla exists, and (theoretically) satisfied customers.

Presumably Musk is anticipating that most buyers will like the Model S enough to not sell it back; if reality lines up, Tesla comes out far ahead. If not, they're doomed, but this scheme would really only be accelerating their demise in that case.

metageek• 13 years ago

Or as soon as the states close the loophole so that this program is treated the same as a lease.

Evbn6• 13 years ago

More likely they should change the loophole so that lease is treated like a sale (with some reasonable pro rating), since it basically is.

zefhous2• 13 years ago

I'm not saying the tax credits won't die out, but it's unfortunate that they will.

I've seen some people saying that these subsidies are unfair, but the US government heavily subsidizes gas too.

Some very rough calculations put the average gas subsidies paid by the US government around $4350 per driver per year.

I dislike subsidies in general, but it's too bad the credit will phase out sooner rather than later. Getting plug-in electrics on the road will save the US tons of money on gas subsidies.

--------------

1.49 gallons/driver/day * 365 days * $8/gallon subsidy = $4350.8/driver/year

Gallons/day: http://en.wikipedia.org/wiki/Gasoline_and_diesel_usage_and_p...

Using an $8 subsidy based on some quick googling, which places the true cost of gas in the US from $12-$15/gallon. Assuming an average price of $4/gallon, that puts a conservative estimate of the subsidy per gallon around $8.

Federal credit phase out info: http://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credi...

gibybo• 13 years ago

Mind sharing the links you found relating to the $8 subsidy?

gensym• 13 years ago

When they heavily subsidize bicycles or living close to your workplace, I'll less of a problem with subsidizing more of the vehicles that pollute my environment and threaten my life.

smackfu3• 13 years ago

By that same logic, most of the plastics you buy are heavily subsidized, since the raw materials are from the subsidized oil industry, the oil industry is protected by the military, and their production causes pollution.

bradleyjg• 13 years ago

The press release is rather odd. Under the section "How it works" there are five bullet points, but only two of them (arguably three) actually describe how it works.

The guaranteed buyback is the special sauce here. So I'd want to see exactly what's involved. Are there lease type conditions on miles driven? Exorbitant charges for minor damage? The small print is rather important.

As for lining up banks to agree to financing subject to approved credit, it's fairly meaningless. Someone will always lend you money subject to approved credit.

richardjordan• 13 years ago

This is a slight spin on leasing, but it's a good one. I love the boldness of Musk's leadership with Tesla. Ready to go out on a limb and try new things. Clever way to ensure that tax breaks still happen, but gives confidence to the customer over things like battery life. It also allows Tesla to control the resale market for their product, as I am fairly sure folks buying a second-hand Tesla will want one where the battery has been fully refurbished by the Tesla factory team.

If you look at Tesla's ambitions - to start at the high end, experiment there then bring the innovations to the broader market - this could prove to be a much bigger change than it appears. Plus, lease-type mechanisms like this can lead to a significant greening of the auto industry over time if such arrangements take hold.

sinak• 13 years ago

A quick search shows that residual values of S-Class's vary based on model and mileage per year, the numbers I'm seeing are in the 49% to 54% rate. The base price of the 60kWh model is $73,070, so assuming they don't include the federal incentive when calculating the residual value, they'd buy the vehicle back from you at ~$36.5k.

Edit: Based on DanielStraight/Tesla's numbers below (43% RV) that'd be a residual value of $31420 on the base model, with a penalty of $0.25 on each mile over 36k.

Tesla's True Cost of Ownership page has more:

http://www.teslamotors.com/true-cost-of-ownership

DanielStraight• 13 years ago

Tesla has a PDF with more precise information:

http://www.teslamotors.com/sites/default/files/pdfs/tesla-re...

The guaranteed resale value is 43% and there's a penalty of $0.25 per mile for each mile over 36000 (58000 km).

MarkSweep• 13 years ago

It is interesting that these terms define a penalty for driving more the 12k miles a year while their TOC calculator defaults to 15k miles per year.

johnward4• 13 years ago

Yeah the S-class value drops tremendously as do almost all other luxury vehicles. I buy used Cadillacs because they drop 50% in 2-3 years.

state• 13 years ago

Somewhat unrelated, but that page looks surprisingly dated. For a company that's thinking so much about design it's unfortunate that it's so difficult to read their press releases.

I think that might be the first time I have actually used in-browser zoom for something.

mark212• 13 years ago

this ought to be called the "Screw the Government" financing plan. It's advantageous to the purchaser, yes, but only incidentally to it's real purpose which seems to be the maximize the tax advantage / subsidy provided by local, state, and federal governments in the US.

They are trying very hard to position Tesla away from the Rich and Famous market segment. This new financing program isn't so much intended to increase sales of the Model S (which is oversubscribed IIRC) as it is to work out the kinks for the lower-end cars coming in a couple of years. And expand the market of people who can and should be considering Tesla vehicles.

hcal• 13 years ago

I think the purpose of the tax credit was to invigorate the electric car industry. I would imagine any way that Tesla can use the tax incentive to move more cars is in line with the government's intent.

Increasing sales makes the company better able to produce electric cars for the market, which I argue is the ultimate reason the government created the program. I don't see this financing option as screwing anyone any more so than a normal purchase that takes advantage of the tax.

tlholaday2• 13 years ago

The tax credit is a fractional refund of the car owner's share of the military budget allocable to petroleum defense.

softbuilder• 13 years ago

There's no screwing. The reason those incentives exist is to get more people to drive electric cars. That's why the governments offered them. ($15k in WV, holy cow!) If anything, the folks leasing were the ones getting screwed.

(Side question: Since a leased car is actually owned by a bank or leasing entity, do they get the credit?)

jcfrei• 13 years ago

interesting move by tesla (and elon musk) but not quite appreciated by the shareholders in the aftermarket. it sounds like a good offer for consumers, however it looks like the kind of move a company would do that is worried about declining sales.

therealarmen• 13 years ago

This product is designed to take advantage of the federal tax credit for electric vehicles (I work in the EV industry) while still maintaining all of the benefits of a lease.

You aren't qualified for the $7,500 federal tax credit if you lease a vehicle, only if you buy. For many first-time EV owners, buying is a big leap of faith. It's a new technology and no one knows for sure where battery tech will be in 10 years. Many drivers would prefer to lease but don't get the tax benefits of purchasing, so instead they decide to stay on the fence.

Tesla just pushed them off the fence.

gfunk911• 13 years ago

Exactly. This is no different than what Aereo did. Go through some contorsions to fit the law, while still giving the customer what they want. Make a lease look like a purchase to get tax credits.

vinhboy• 13 years ago

Someone told me Nissan is doing the same thing with the Leaf right now. They are offering dirt cheap leases because the dealership is taking the tax-credit to subsidize the cost. Tesla is just branding it differently.

Coloring shades of grey into our tax laws...

johnward4• 13 years ago

Oh I didn't catch that part. You structure a purchase like a lease because you can only get the tax credit on a purchase. The reasoning makes a little bit more sense now.

jccooper2• 13 years ago

For some other vehicles (Volt) I've heard the leasing company gets the credit if you lease; probably ought to be the same for Tesla. Dunno why they wouldn't be able to pass that along.

The residual value guarantee is pretty good though.

beachstartup• 13 years ago

because tesla doesn't lend money, they make and sell the cars, they do not own them once they are sold

usually there is a separate entity that finances or leases the cars sold at the dealership, such as mbfs for mercedes benz financial services, gmac for general motors (defunct) etc

for tesla to offer the rebate directly they would have to setup a revenue split from the finance back end, or take a hit on the sales revenue, which is either difficult to get out of a bank, and not in the interest of tesla, respectively.

loceng2• 13 years ago

Did not know that. This will hugely increase sales.

OGinparadise2• 13 years ago

This is a high risk high reward gamble by Tesla. If people take this offer, they are basically getting to lease to own. Musk is betting that the car will be so good that people will want to keep it.

This is tricky. Isn't the battery technology always getting improved? That should make car owners more likely to upgrade, if they decide to keep getting electric cars, IMO. The battery is arguably the most important part of the car.

toomuchtodo2• 13 years ago

And in the Tesla Model S, can be swapped in about an hour.

Why would you replace the whole car vs swapping in a newer, better battery?

OGinparadise2• 13 years ago

Just like replacing the remote control batteries, right? Wrong, Tesla batteries cost a fortune, so while you can replace them, it will hit your wallet http://en.wikipedia.org/wiki/Tesla_Model_S

dfischer• 13 years ago

Wow I may actually want to buy a Tesla S now... however the real numbers would be $700/mo instead of $500/mo

cbr• 13 years ago

    the same residual value percentage as the iconic
    Mercedes S Class, one of the finest premium sedans
    in the world

They make this sound good, but it's not: fancier cars depreciate faster than regular cars. Now, if they offered to match the residual value percentage of a Toyota Corolla, ...

MrFoof2• 13 years ago

Being a car nut, I thought the exact same thing. "The same residual value percentage as the iconic Mercedes S Class, one of the finest premium sedans in the world" initially hit me as an inside joke, considering how easy it is to buy a 12-cylinder Merecedes-Benz (CL, SL, or S) for $20K after about 6-years, on account on their absolutely brutal repair costs. The 8-cylinder S-class resale tends to tank, on how often they're leased and tend to flood the market after 3 to 4 years.

Lamborghini, Aston Martin, and Maserati fall into the same bucket on the sporty/sports GT car side of the fence. If you want great resale value, you buy a Lexus ES -- on account of everyone wants a quiet, boring, comfortable, reliable (parts-bin to a large extent) mid-size sedan that they too can afford to repair, insure and keep running.

niggler2• 13 years ago

Maserati is by far the worst. The common joke is that most bankers get a new one every bonus cycle.

aero142• 13 years ago

Yeah, the depreciation is higher but comparing it to a Mercedes S seems perfectly fair to me. The Tesla is not competing with the Corolla.

crapshoot1012• 13 years ago

This. A 1000x this. Musk has a laudable goal, but this is consumer marketing 101 - they're not guaranteeing the value equivalent to that, but the same price degradation curve as a luxury good. That's not a favor, that's a negative.

Evbn6• 13 years ago

They are matching their class of competition (luxury cars) not enticing people to upgrade from Volt.

encoderer• 13 years ago

I love Mercedes and am loyal to the brand, but those familiar know that the S and similar autos in its segment have pretty low residuals. This is due to many things, like the fact that the cutting-edge tech on those cars can be very expensive to replace or maintain as the car ages

zalew• 13 years ago

well, it's not because of its cutting-edgeness, but because of the insane margins on replacement parts. mercedes parts at least get cheaper after some time (anectodal evidence), bmw parts prices stay ridiculous forever (personal experience).

jusben13693• 13 years ago

Yes Mercedes S class has pretty poor residuals for a number of reasons. Firstly, most are leased so there's a flood of 3 year old S series always hitting the market. Secondly, Mercedes is just not that good at tech. My last BMW lease was 61% residual after 3 years.

jusben13693• 13 years ago

I think the point is "We have this huge economic advantage (credits) that are only available to those who buy the car. Yet nearly 50% of all expensive cars are now leases. We're trying to convince new car owners to switch brands AND switch payment methods. That's two mountains to climb. Let's go solve one of those problems"

josephpmay• 13 years ago

The way they present this gives me a really bad taste. I think it's ridiculous that the quoted monthly payment includes a business deduction (which, if you're one of the few people it actually applies to, you'd get no matter what car you owned), California tax credits (lower in the rest of the US), savings vs. a 19mpg car figuring $5 a gallon gas (gas isn't that expensive, and my sports coup gets 21 mpg), and the monetary value of the time saved from not gassing up your car! This is just misleading and will turn people away from Tesla. The only thing "new" here is the guaranteed residual value, and other automakers (such as Hyundai) have offered that in the past. I usually have great admiration for Elon Musk and what Tesla is doing, but this is ridiculous and basically false advertising.

manacit• 13 years ago

At the very lease, they do provide a tool to determine your TCO: http://www.teslamotors.com/true-cost-of-ownership

Admittedly, it ends up being a lot more if you don't live in California, drive a car that gets a more reasonable MPG, etc. Whether it will turn people away or lead people to doing the research themselves remains to be seen.

senthilnayagam• 13 years ago

Currently they are doing roughly about 5000 units per quarter. if they can ramp up to 10-15K units per quarter with this sales strategy the need another model launched pretty soon

xoail• 13 years ago

I like the tool they built here: http://www.teslamotors.com/true-cost-of-ownership, To be real, it looks like the 60kWh lease comes down to $859/m + taxes for most of us.

sobbybutter2• 13 years ago

I think this is really foolish. Yes, there is a benefit to the consumer but it brings with it a very large liability risk for Tesla. I would much rather purchase a large-ticket item such as an automobile from a company that is robust enough to service the thing 10 years down the road than get a better upfront deal with the possibility that the company will go bust. I hope and believe that Tesla will succeed, but what if there are unforeseen problems with the cars later on? In that case, I'd want Tesla to be financially healthy enough to take large, unpredictable blows.

ghaff2• 13 years ago

I suppose you could cynically say that if things evolve in such a way that this creates a huge liability (batteries don't last, reliability is bad, etc.), then Tesla doesn't really care because they're toast anyway.

sobbybutter2• 13 years ago

Just because there is risk in the current state doesn't make it okay to add more risk. This gives small upside to the customer with potentially large downside. And the effect of these risks may not be linear. For instance, imagine two events: 1) There is a major recall that puts a strain on the Tesla's finances, but Tesla remains solvent. 2) Residual value is less than anticipated (for whatever reason), costing Tesla a lot of money, but Tesla remains solvent. Now imagine a situation where #1 correlates to #2, say that there is a major recall that also negatively affects residual value. That blow could be much worse than each of these events occurring independently. I'm not trying to predict the future here, all I'm saying is that being less fragile is inherently better than being more fragile.

codex5• 13 years ago

This product kind of sucks for the consumer, but it's great for Tesla--and it's is the best that Tesla can do due to their shortage of cash and the risky nature of electrics.

The main advantage of a traditional lease is an extremely low monthly payment: the lessee only pays for the depreciation on the car plus interest on the entire purchase price.

Tesla's product does not offer this, because it's simply a five year loan. Rather than for paying for 40% of the car over three years, you pay 100% over five, so the monthly payment will be roughly 50% more than with a real lease.

Why can't Tesla offer a real lease? Because no bank wants the risk on fundamentally new type of car. Normal leases are financed by banks with the car as collateral at the end of three years; this allows the bank to take the risk of much lower principal repayments over the first 36 months. Usually the car's residual is struck low enough to make this a good deal for the bank. However, banks balked at taking the Tesla Model S as collateral, because there's extreme uncertainty about how valuable these cars will be in three years--for example, if there's a breakthrough in battery technology, or if the batteries themselves don't last very long, or the car proves unreliable for other reasons, the final collateral could be worth much less than estimated.

Ideally Tesla would sell the cars to themselves, claim the $7500 tax credit themselves, and pass the savings onto the lessees via lower lease rates, essentially acting as their own bank (many car companies do this, like Nissan with their LEAF and Ford with the Focus Electric). However, Tesla doesn't have the cash or assets to do that. They need to put all of their cash into operations and can't loan it out, and they don't have enough profit for them to take advantage of the tax credit.

So who takes the risk? The customers. They must make 1.5x higher monthly payments even if they plan to sell the car back, and they're taking a risk that Tesla (or Elon) will be around in three years to honor the buyback price. Furthermore, customers cannot sell the car or the guarantee is lost; it's not transferable to a new owner. Tesla is gambling that they'll have the cash to honor the buyback prices even if the car turns out to have massively depreciated. If the car depreciates massively, Tesla may not be around anyway, so it's a good risk for the company. Likely the residual value is struck low enough (~45%) that they can probably resell the cars without a loss in the expected case, even though that number is still too risky for banks to go for.

Kudos to Elon for personally guaranteeing the resale value; that takes some cojones.

krschultz• 13 years ago

Are you sure the banks balked at taking Tesla's as collateral? It seems a lot more likely that Tesla simply wouldn't be eligible for the tax credit. I have not read anywhere that banks are not giving out car loans to finance a Tesla because they are worried about having it as collateral. Occams razor says to me it is simply a tax play.

codex5• 13 years ago

Even if Tesla couldn't take advantage of the tax credit, they can find a bank who could. Leases are riskier than loans for banks for a few reasons:

- The bank has to place a bet on the value of the car 36 months from now--a huge risk. With a loan, they only have to bet on the credit-worthiness of the borrower, and they can ask for additional collateral, if they wish.

- In case of a lease default, there is no equity in the car, because lessors, by definition, only pay for depreciation. On a loan default, there is usually at least some equity in the car.

- Usually the down-payment is less for a lease than for a loan (Tesla's program requires 10% down, almost unheard of for a lease).

All of these factors taken together mean that the bank is much less likely to take a bath on a loan than a lease.

Evbn6• 13 years ago

There is no consumer risk, there is only the price, since Musk is cosigning the guarantee.

codex5• 13 years ago

True, and this counts for something. That said, Elon is not putting his money in escrow, and a large portion of his wealth is in Tesla, which disappears with Tesla.

jcampbell13• 13 years ago

> Normal leases are financed by banks

Last time I check, no banks did leases. Only the captive finance companies do leases. e.g. Ford Credit / Toyota Credit / GMAC / etc.

This type of financing has been done many times before, but for a different reason. New York and New Jersey have vicarious liability laws which means if the car damages your property, you can sue the owner of the vehicle. In a lease, the credit company has title of the vehicle, thus for a period, no leases were done in certain states, and they just did this same "guaranteed resale/baloon payment" loan.

codex5• 13 years ago

My last lease was through US Bank.

bradleyland2• 13 years ago

I've leased through Chase Bank instead of VW Credit before because of a better money factor (residual was the same).

tokenadult2• 13 years ago

The more you see funny financial manipulation associated with a product, the more you can infer that the product is doomed as a product. It's not clear that Tesla can genuinely manufacture its cars at a profit.

http://247wallst.com/2013/04/01/teslas-awful-sales-news/

That results in "ridiculous numbers"

http://www.businessinsider.com/can-you-really-get-a-tesla-mo...

in Tesla's latest financial claims.

anigbrowl2• 13 years ago

Ouch.

Guvante• 13 years ago

Banks aren't willing to do a lease program with the Tesla because they don't believe it will hold its value.

Tesla can't self sponsor leases because they don't have the cash and might not be able to cash in the full credit (since they haven't been making good profits).

This provides the customer a lease like situation given the above.

revelation2• 13 years ago

That article is opinion mixed in with misinterpretations mixed in with citing from SEC filings. Pick any random company and read their SEC filing, and you will surely think they will crash and burn in short order.

[..] a number of components are currently obtained from single or limited sources, which subjects the Company to significant supply and pricing risks.

Many components [..] are at times subject to industry-wide shortages and significant commodity pricing fluctuations

A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-sourced suppliers of components and manufacturers for many of the Company’s products.

[..] the Company must make significant investments in research and development. [..] In contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures

Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce new products, services and technologies, enhance existing products and services, and effectively stimulate customer demand for new and upgraded products.

Substantially all of the Company’s manufacturing is performed in whole or in part by a few outsourcing partners located primarily in Asia.

Many of the Company’s products include third-party intellectual property, which requires licenses from those third parties. [..] There is, however, no assurance that the necessary licenses can be obtained on acceptable terms or at all.

Thats Apple. There are a bunch more of these, too.

TWAndrews• 13 years ago

If you've ever read the 10-K for any corporation, they sound like there is no possibility that company will make any money whatsoever and that you'd be better off burning your cash than investing it.

They're not reasoned documents, they're a picture of the absolute worst-case scenario.

damoncali2• 13 years ago

To me, this plan implies that Tesla may be in big trouble. They are having trouble with financing these cars - that's a huge problem that they will have to find a way through, and this scheme strikes me as desperate (although clever).

Apparently, Wall St agrees with me, as the stock is down 8% today as I type this.

benburleson• 13 years ago

What does this mean for the Tesla market 3 years from now?

MikeCapone4• 13 years ago

Mercedes has taken decades to build a reputation as a brand that holds value relatively well in the used car market, and in one day, Tesla has latched on to that and told everybody "we hold our value just as much". Brilliant move for a small startup, in my opinion.

Wistar• 13 years ago

I'm not sure when it happened but my getting ribbed by friends and family about my having bought TSLA the day it went public has finally ebbed.

rdl3• 13 years ago

Generally top-end luxury cars like the S-Class have horrible residual values, so I can't imagine anyone actually letting Tesla take the car back -- private buyers would probably always pay more. I don't think the Model S is going to depreciate much, unless there is some huge change in technology or some huge flaw discovered in the Model S.

I think the Tesla's value is more likely to follow a 911 Turbo or another sports car like that vs. a luxury car.

Being able to refinance at 36months with a 5 year used car loan at ~5% would be pretty nice, though.

Evbn6• 13 years ago

How is driving a luxury car a legitimate business expense? The IRS should be cracking down on that fraud, and only allow deductions for the value of a basic functional vehicle.

PeterisP• 13 years ago

As the running costs (electricity vs gas) are noticeably better, it makes much more sense to run Teslas as a business vehicles rather than consumer goods, since a business car is "on the run" much more - in essence, electric cars will be the cost-effective option in the long run rather than a luctury.

Aloha• 13 years ago

Why?

What makes a luxury vehicle substantively different from a small car, if anything, you would get less benefit from the depreciation on a luxury car, because they tend to be worth more used. Also, a Luxury Car, and a top of the like 3/4 ton truck are in the same price range. Also, it is for example quite legitimate to outfit your outside sales people with a nice high end vehicle, they need to drive what their customers would expect them to.

smackfu3• 13 years ago

If your car is legitimately used for business, I don't see why the IRS should be enforcing austerity measures.

rdl3• 13 years ago

The Model S actually seems fairly future-proof. I don't see battery tech getting much better in the next 5 years, and even if it does, it shouldn't be too difficult to replace the battery, controller, etc. with new technology in that timeframe. If they can move the industry away from "My 2006 Audi is still a mechanically nice car, but the nav system is horribly dated, so I'd consider replacing the whole car to get a better nav system in a few years", to one where you can more readily upgrade components (vs. just replace with identical parts, or go into the aftermarket world which only really exists for high volume models), that would be a big improvement.

Especially if the battery pack needs replacing after 8-10 years, it seems like it would be worth upgrading it at 6+ years with a 30% better-than-new pack, assuming technology has improved by then.

r00fus• 13 years ago

Agreed - the Model S looks like the first Macbook/Pro unibody from 2008. What would later become an iconic style, and that model is still supported through OS upgrades 4 years later. Still resells for ~40% of original price after all this time.

A wise investment considering the alternative products. A 43% resale value buyback isn't too shabby, but my guess is the model S would be worth more than that in 5 years.

hojoff79• 13 years ago

Here is a pretty good approximation of what a normal person would be able to claim (to themselves) about the actual cost of owning the 85kWh. Comes to $940 a month of actual cost. This type of advertising is obviously very misleading.

http://blogs.wsj.com/corporate-intelligence/2013/04/02/the-s...

jusben13693• 13 years ago

Kind of a "Yikes" on them pushing this $500 per month rate. It includes assumptions like time saved at gas stations and driving in carpool lands and states that have a rebate. I think they'll get more blowback on this than the NYTimes piece in terms of their credibility.

nwzpaperman2• 13 years ago

Securitizing tax credits...nothing like going down in maximum Li-flames. Trying to prime the order pipeline.

Popcorn plsthx

miles_matthias• 13 years ago

This is really awesome. Every aspect of the car industry should be challenged and awesome entrepreneurs like Elon Musk who give their all are an inspiration.

manav• 13 years ago

This is what I call some creative marketing manipulation - there's really nothing new or amazing here.

The loan is a normal car loan with 10% down (in fact you may be able to get a better rate with a CU instead of US Bank / Wells Fargo at around 3%).

The residual on a S Class is actually on the lower end for luxury cars (~40% ish). So the risk in the buy-back option is minimal for Tesla.

Since the Model S is still relatively small in production numbers, it will likely have a much higher residual value (I'm guessing over 60% after 3 years) unless something goes horribly wrong.

It also doesn't combine the "best aspects" of leasing and buying. They show a $284 deduction for business use, which probably assumes 100% business usage.

If I were to do the same with a lease, I could write off 100% of my lease payments... but the lease vs. buy benefit certainly depends on your business situation and usage.

What I would like to see is a real lease that could compete with BMW/Audi. Good lease offers are typically a result of cars with high residuals (like reliable Hondas or brands like BMW/Audi). You wouldn't get the $7500 tax credit with the lease, but I believe the manufacturer might get it themselves and I've seen these incentives passed down to the consumer even in leases.

Maybe we'll see it in after the car has been on the market for a few years, but by that time those big tax credits will probably be gone.

gcb0• 13 years ago

In plain English:

"We changed the name of a lease, so people leasing a 1500/month car can get a free $7000"

Also "we can say a $1500 lease only costs $500, because marketing and stuff"

JumpCrisscross2• 13 years ago

I love Tesla, I love Elon Musk, but this unsettles me. It is unusual for a company so young to start pushing sales via financing. More so when the package includes a 3y repurchase obligation.

Start with Elon Musk personally backing the repurchase agreement. Was the bank unwilling to to take this risk? Why could they believe they can't securitise the risk? Granted this is U.S. Bancorp and Wells Fargo we're talking about. Will the risk live on Tesla's balance sheet? The silver lining would be the clarity investors will get into the assumptions that went into pricing the put.

Why we are already talking about financing? Wasn't the plan to improve accessibility by driving down prices through increasingly mass market models? Who is the marginal customer who balked at the cash price but is shifted by this? The one who doesn't have the cash? Or couldn't get a bank loan? These customers are probably less credit-worthy than Tesla's cash customers. The repurchase agreement is a callable loan to borrowers willing to fund a large discretionary purchase with debt. This will come home to roost if U.S. growth and thus incomes tank and erstwhile enthusiastic greenies start seeing their vroom vrooms as piggie banks.

We know that part of what pushed Tesla into profitability was its re-working of its DoE loan. Is this a way to pull forward sales? How are these "leases" accounted for when they're made? I'm keeping an eye open for if they recognise the full value of the sale, less an ignomiously small loss reserve, upon signing.

Comparatively minor but still irking me: why is Elon Musk implying his credit is better than Tesla's? Tesla has more loss-absorbing capital. Given the amount of Musk's net worth tied up in Tesla, his credit has a high correlation with Tesla's. I get that this is more a marketing stunt, but the emptiness is disappointing. Then again, I would have probably railed at Steve Jobs in 1998, too.

johnrgrace• 13 years ago

The bank is going to charge Tesla for a repurchase option, but if Elon makes it himself no charge to the company. If Elon really believes in his product then that option is one that will never get taken up, thus costing him nothing.

JumpCrisscross2• 13 years ago

The repurchase option insures you against your reality diverging from Elon Musk's expectations.

Put it this way: Portugese Insurance Group (PIG) sells you an annuity that it promises to repurchase should the market crash. You find out PIG would go broke if it had to repurchase even 1% of outstanding annuities. "No worries," the broker assures you, "we really believe in this product. You will never have to take up the option."

wellboy• 13 years ago

Tesla could do the same as DriveNow so that you can find a Tesla car any place and pay 29c/minute. That's what I'd call innovation. :)

grandalf• 13 years ago

This is just the kind of creativity Detroit is lacking.

alimoeeny• 13 years ago

I really thought it is an Aprile fool's joke,

mzuvella• 13 years ago

Numbers might be a little deceiving but a huge move for Tesla.

dinhhoainam• 13 years ago

i think you have good price

OldSchool• 13 years ago

Matching the resale characteristics of a new Mercedes isn't really something to brag about.

The right side of that trade is to be the -buyer- of a 3-4 y/o MBZ. If you appreciate great cars but don't care about the vanity of having the very newest model to show off, that age is a sweet spot where the first owner has already paid for about 2/3 of the car yet used only about 1/4 of its lifetime utility.

kvanderd• 13 years ago

My husband and I traded in our old car two months ago for a Model S. We love it.

That said, the first month before the charge station was installed we could only charge 5 miles per hour with a regular wall outlet(we hardly drove the car). Finding someone to intall a charger and getting the approval of the HOA was a huge hassel (and we're in San Francisco). The cost of the charger / installation was 2500!

jkahn• 13 years ago

Please, please, please bring this to Australia for the Model S launch. I'm buying one on launch day if we have this option.

auctiontheory• 13 years ago

My takeaway from all this is that if you need a loan to afford a Tesla S, you probably shouldn't buy one.

akandiah• 13 years ago

There's an interview with Elon on Bloomberg which answers some of the questions that people have raised here: http://www.bloomberg.com/news/2013-04-02/tesla-to-begin-mode...

johnward4• 13 years ago

If I adjust the numbers to something more reasonable I would end up with about $700 a month. Which really isn't that bad for a car in this class, but more than I would pay. I'd love to own one someday though.

johnward4• 13 years ago

I think you would be better off with a straight lease, but to set that up you need to calculate depreciation correctly. In this case it seems like tesla is protected from having to eat it if the depreciation of these vehicles is insanely high. The cost is passed on to the customer. Although tesla will be on the line for the difference between the Model S and the S-class should the Model S depreciate faster.

The other thing is that I thought they couldn't make these fast enough as is? Why do they need a financing product like this to get people into the cars?

Tesla Unveils New Finance Product

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