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Tesla Unveils New Finance Product

438 points by antr 14y ago

josh2600 14y 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 14y ago
  More info if you don't know Tony :-) http://techcrunch.com/2013/04/02/downtown-project-buys-100-tesla-model-ss-to-launch-project-100-a-car-sharing-service-in-las-vegas/ http://techcrunch.com/2013/04/02/downtown-project-buys-100-t...
  - medell 14y ago
    Thanks for that. Nice find.
zwass 14y 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 14y 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 14y 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 14y ago
Please correct me if I'm wrong, but a quick google tells me residual value is about 60%?
- boyter 14y ago
  Probably correct. Residual value of pretty much any luxury car is terrible.
- superchink 14y ago
  Looks like it's 43%, according to their document here: http://www.teslamotors.com/sites/default/files/pdfs/tesla-resale-value-guarantee.pdf http://www.teslamotors.com/sites/default/files/pdfs/tesla-re...
SandersAK 14y 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 14y 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 14y 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 14y 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 14y 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.
- paul_f 14y 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 14y ago
    I see what you did there.
    - Bromskloss 14y ago
      I can smell it.
      - uzair88 14y ago
        put that Google Nose to use!
- mikemoka 14y ago
  Impressive, he has passion, vision and determination, he is truly a great entrepreneur, maybe the boldest of these times.
  - gnrlbzik 14y ago
    that dude just keeps on pushing things... amazing
  - peterhajas 14y 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.
bishnu 14y 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 14y 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.
- fnordfnordfnord 14y ago
  Mercedes S-Class have terrible resale value vs purchase price. Should be an easy mark to hit.
  - joncooper 14y 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.
- crapshoot101 14y 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 14y 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 http://www.teslamotors.com/true-cost-of-ownership Parts are a little surprising (e.g. it assumes your time is worth $100/hour).
- coob 14y ago
  Also goes up a whole bunch if you take off the business tax exemptions…
- blinkingled 14y 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 14y 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 14y 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 14y 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).
archon 14y 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 14y 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 14y ago
  Or as soon as the states close the loophole so that this program is treated the same as a lease.
  - Evbn 14y 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.
    - ghaff 14y ago
      A lease is indeed effectively a financing option; that's pretty basic Finance 101. That said, one of the things one also learns in Finance 101 is that there are tax differences between how leases are handled and how capital expenditures are handled and that any calculation has to be made on an after-tax basis. (Which is a long-winded way of saying that how something like this should be treated from a tax/accounting perspective isn't at all obvious (to this non-accountant). Although I'm sure Tesla has vetted this pretty carefully.
- zefhous 14y 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_pricing#Fuel_prices_in_the_United_States 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-Credit-(IRC-30-and-IRC-30D) http://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credi...
bradleyjg 14y 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 14y 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 14y 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 http://www.teslamotors.com/true-cost-of-ownership
- deleted 14y ago
  [deleted]
- DanielStraight 14y ago
  Tesla has a PDF with more precise information: http://www.teslamotors.com/sites/default/files/pdfs/tesla-resale-value-guarantee.pdf 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 14y 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.
- johnward 14y 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 14y 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 14y 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 14y 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.
  - tlholaday 14y ago
    The tax credit is a fractional refund of the car owner's share of the military budget allocable to petroleum defense.
- softbuilder 14y 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 14y 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 14y 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 14y 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 14y 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...
    - MichaelApproved 14y ago
      I think this is still well within the spirit of the tax laws. The point of the tax credit is to get people to use green technology and this is doing just that.
      - sanderjd 14y ago
        What is the spirit of not providing the tax credit to leases as well as purchases? (Actual curiosity, not trying to imply anything.)
        sparky 14y ago
OGinparadise 14y 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.
- toomuchtodo 14y 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?
  - OGinparadise 14y 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 http://en.wikipedia.org/wiki/Tesla_Model_S
    - toomuchtodo 14y ago
      You would be a fool to think they're going to cost the same in 3-5 years what they cost now.
dfischer 14y 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 14y 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, ...
- MrFoof 14y 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.
  - niggler 14y ago
    Maserati is by far the worst. The common joke is that most bankers get a new one every bonus cycle.
    - nwzpaperman 14y ago
      Dealers only sell new autos to capture the service business, trade-in inventory and manufacturer floor plan financing. In the case of Maserati, servicing costs are inline with Ferrari making it a service cash cow!
      - niggler 14y ago
        "servicing costs are inline with Ferrari making it a service cash cow!" Incidentally, Maserati used to be owned by Ferrari, although now I think it is owned by Fiat
encoderer 14y 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 14y 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).
- jusben1369 14y 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.
jusben1369 14y 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 14y 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 14y ago
  At the very lease, they do provide a tool to determine your TCO: http://www.teslamotors.com/true-cost-of-ownership 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 14y 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 14y ago
I like the tool they built here: http://www.teslamotors.com/true-cost-of-ownership 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.
sobbybutter 14y 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.
- ghaff 14y 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.
  - sobbybutter 14y 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.
codex 14y 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 14y ago
tokenadult 14y 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/ 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-model-s-for-under-500-dollars-per-month-2013-4 http://www.businessinsider.com/can-you-really-get-a-tesla-mo... in Tesla's latest financial claims.
- anigbrowl 14y ago
  Ouch.
- Guvante 14y 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.
- revelation 14y 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.
benburleson 14y ago
What does this mean for the Tesla market 3 years from now?
MikeCapone 14y 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 14y 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.
rdl 14y 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.
Evbn 14y 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 14y 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 14y 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.
- smackfu 14y ago
  If your car is legitimately used for business, I don't see why the IRS should be enforcing austerity measures.
rdl 14y 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 14y 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 14y 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-strange-maths-of-teslas-500month-model-s/ http://blogs.wsj.com/corporate-intelligence/2013/04/02/the-s...
jusben1369 14y 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.
nwzpaperman 14y ago
Securitizing tax credits...nothing like going down in maximum Li-flames. Trying to prime the order pipeline. Popcorn plsthx
miles_matthias 14y 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 14y 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 14y 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"
JumpCrisscross 14y 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 14y 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.
  - JumpCrisscross 14y 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 14y 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 14y ago
This is just the kind of creativity Detroit is lacking.
alimoeeny 14y ago
I really thought it is an Aprile fool's joke,
mzuvella 14y ago
Numbers might be a little deceiving but a huge move for Tesla.
dinhhoainam 14y ago
i think you have good price
OldSchool 14y 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 14y 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 14y 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 14y 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 14y 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-model-s-financing-with-u-s-bancorp-wells-fargo.html http://www.bloomberg.com/news/2013-04-02/tesla-to-begin-mode...
johnward 14y 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.
johnward 14y 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?

438 points by antr 14y 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 14y ago
More info if you don't know Tony :-) http://techcrunch.com/2013/04/02/downtown-project-buys-100-tesla-model-ss-to-launch-project-100-a-car-sharing-service-in-las-vegas/ http://techcrunch.com/2013/04/02/downtown-project-buys-100-t...
- medell 14y ago
  Thanks for that. Nice find.

zwass 14y 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 14y 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 14y 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 14y ago

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

boyter 14y ago
Probably correct. Residual value of pretty much any luxury car is terrible.
superchink 14y ago
Looks like it's 43%, according to their document here: http://www.teslamotors.com/sites/default/files/pdfs/tesla-resale-value-guarantee.pdf http://www.teslamotors.com/sites/default/files/pdfs/tesla-re...

SandersAK 14y 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 14y 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 14y 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 14y 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 14y 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.

paul_f 14y 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 14y ago
  I see what you did there.
  - Bromskloss 14y ago
    I can smell it.
    - uzair88 14y ago
      put that Google Nose to use!
mikemoka 14y ago
Impressive, he has passion, vision and determination, he is truly a great entrepreneur, maybe the boldest of these times.
- gnrlbzik 14y ago
  that dude just keeps on pushing things... amazing
- peterhajas 14y 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.

bishnu 14y 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 14y 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.
fnordfnordfnord 14y ago
Mercedes S-Class have terrible resale value vs purchase price. Should be an easy mark to hit.
- joncooper 14y 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.
crapshoot101 14y 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 14y 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 http://www.teslamotors.com/true-cost-of-ownership Parts are a little surprising (e.g. it assumes your time is worth $100/hour).

coob 14y ago
Also goes up a whole bunch if you take off the business tax exemptions…
blinkingled 14y 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 14y 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 14y 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 14y 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).

archon 14y 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 14y 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 14y ago
Or as soon as the states close the loophole so that this program is treated the same as a lease.
- Evbn 14y 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.
  - ghaff 14y ago
    A lease is indeed effectively a financing option; that's pretty basic Finance 101. That said, one of the things one also learns in Finance 101 is that there are tax differences between how leases are handled and how capital expenditures are handled and that any calculation has to be made on an after-tax basis. (Which is a long-winded way of saying that how something like this should be treated from a tax/accounting perspective isn't at all obvious (to this non-accountant). Although I'm sure Tesla has vetted this pretty carefully.
zefhous 14y 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_pricing#Fuel_prices_in_the_United_States 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-Credit-(IRC-30-and-IRC-30D) http://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credi...

bradleyjg 14y 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 14y 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 14y 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 http://www.teslamotors.com/true-cost-of-ownership

deleted 14y ago
[deleted]
DanielStraight 14y ago
Tesla has a PDF with more precise information: http://www.teslamotors.com/sites/default/files/pdfs/tesla-resale-value-guarantee.pdf 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 14y 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.
johnward 14y 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 14y 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 14y 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 14y 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.
- tlholaday 14y ago
  The tax credit is a fractional refund of the car owner's share of the military budget allocable to petroleum defense.
softbuilder 14y 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 14y 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 14y 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 14y 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 14y 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...
  - MichaelApproved 14y ago
    I think this is still well within the spirit of the tax laws. The point of the tax credit is to get people to use green technology and this is doing just that.
    - sanderjd 14y ago
      What is the spirit of not providing the tax credit to leases as well as purchases? (Actual curiosity, not trying to imply anything.)
      - sparky 14y ago

OGinparadise 14y 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.

toomuchtodo 14y 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?
- OGinparadise 14y 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 http://en.wikipedia.org/wiki/Tesla_Model_S
  - toomuchtodo 14y ago
    You would be a fool to think they're going to cost the same in 3-5 years what they cost now.

dfischer 14y 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 14y 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, ...

MrFoof 14y 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.
- niggler 14y ago
  Maserati is by far the worst. The common joke is that most bankers get a new one every bonus cycle.
  - nwzpaperman 14y ago
    Dealers only sell new autos to capture the service business, trade-in inventory and manufacturer floor plan financing. In the case of Maserati, servicing costs are inline with Ferrari making it a service cash cow!
    - niggler 14y ago
      "servicing costs are inline with Ferrari making it a service cash cow!" Incidentally, Maserati used to be owned by Ferrari, although now I think it is owned by Fiat

encoderer 14y 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 14y 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).
jusben1369 14y 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.

jusben1369 14y 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 14y 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 14y ago
At the very lease, they do provide a tool to determine your TCO: http://www.teslamotors.com/true-cost-of-ownership 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 14y 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 14y ago

I like the tool they built here: http://www.teslamotors.com/true-cost-of-ownership 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.

sobbybutter 14y 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.

ghaff 14y 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.
- sobbybutter 14y 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.

codex 14y 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 14y ago

tokenadult 14y 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/ 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-model-s-for-under-500-dollars-per-month-2013-4 http://www.businessinsider.com/can-you-really-get-a-tesla-mo... in Tesla's latest financial claims.

anigbrowl 14y ago
Ouch.
Guvante 14y 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.
revelation 14y 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.

benburleson 14y ago

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

MikeCapone 14y 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 14y 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.

rdl 14y 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.

Evbn 14y 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 14y 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 14y 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.
smackfu 14y ago
If your car is legitimately used for business, I don't see why the IRS should be enforcing austerity measures.

rdl 14y 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 14y 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 14y 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-strange-maths-of-teslas-500month-model-s/ http://blogs.wsj.com/corporate-intelligence/2013/04/02/the-s...

jusben1369 14y 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.

nwzpaperman 14y ago

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

miles_matthias 14y 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 14y 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 14y 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"

JumpCrisscross 14y 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 14y 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.
- JumpCrisscross 14y 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 14y 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 14y ago

This is just the kind of creativity Detroit is lacking.

alimoeeny 14y ago

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

mzuvella 14y ago

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

dinhhoainam 14y ago

i think you have good price

OldSchool 14y 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 14y 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 14y 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 14y 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 14y 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-model-s-financing-with-u-s-bancorp-wells-fargo.html http://www.bloomberg.com/news/2013-04-02/tesla-to-begin-mode...

johnward 14y 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.

johnward 14y 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?