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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.
by 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 agoElon 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 agoI see what you did there.
- Bromskloss 14y agoI can smell it.
- uzair88 14y agoput that Google Nose to use!
- mikemoka 14y agoImpressive, he has passion, vision and determination, he is truly a great entrepreneur, maybe the boldest of these times.
- gnrlbzik 14y agothat dude just keeps on pushing things... amazing
- peterhajas 14y agoBoth 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.
- Vivtek 14y agoSo what you're saying is that Elon Musk isn't capable of revolutionizing two long-standing American industries (arguably the two long-standing American industries) at the same time, single-handedly and without help, and that this is evidence that he is not a great entrepreneur. I think maybe your bar is set too high.
- philwelch 14y agoIt remains to be seen whether Elon Musk can revolutionize even one long-standing American industry.
- Vivtek 14y agoI dunno, a private delivery contract to the ISS qualifies in my book. Maybe I am setting my sights too low. This is a tough crowd!
- notdrunkatall 14y agoIt's cool to be contrarian, haven't you heard?
- Evbn 14y agoWhy? He negotiated some funds from the state. They aren't insuring his entire business.
- gfodor 14y agomain quality of an entrepreneur is resourcefulness. think about that for a second.
- aik 14y agoHe's not paying everything out of pocket, therefore he is not a great entrepreneur? My understanding is that great entrepreneurs find ways to distribute the risk.
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- hkmurakami 14y agoA 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.
- codex 14y agoYou'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 14y agoIs he putting his personal finances behind that personal guarantee?
- ParkerK 14y agoSome of it is most likely, yes. He's not afraid to fund his own projects, the man has passion
- Evbn 14y agoAnd billions of dollars.
- MikeCapone 14y agoI was on the conference call. He basically said that it was guaranteed by all his assets even if Tesla was somehow to disappear.
- tanzam75 14y agoLast I heard, Elon Musk was very cash-poor after his two divorces. Most of his money is tied up in equity stakes in SpaceX and Tesla. So if Tesla fails, then the "personal guarantee" simply turns into SpaceX shares. And SpaceX is a pre-IPO company.
- MikeCapone 14y agoHe still didn't have to do that. It's more about signalling his confidence level. I wouldn't bet against Elon.
- vl 14y 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 14y agoAs 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.
- joncooper 14y agoThere 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.
- smallegan 14y agoElon could offer the same personal guarantee to cash buyers?
- vl 14y agoWell, may be offer this options for a price or something. They did bet that resale value will be higher than certain amount. Moreover, if it's higher, than what stops you from selling yourself and just returning the loan? I.e. it seems that they are not going to benefit from upside, but will suffer from downside - if resale value is lower, all people having this option will execute it. On other hand if enough buyers will buy this option, this will effectively set the market price of the used car (as lease does for 3yo BMWs, for example). Anyway, it seems they punish current cash buyers if this option is not available for them.
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- Shivetya 14y agoLast 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.
- MRSallee 14y 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-typical-2011-nissan-leaf-buyer-we-find-out 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-attracting-wealthy-buyers/ http://autos.aol.com/article/why-the-chevy-volt-is-attractin...
- groby_b 14y agoTesla S, average owner income >$200K. http://www.teslamotorsclub.com/showthread.php/7238-Model-S-Buyers-What-s-Your-Income http://www.teslamotorsclub.com/showthread.php/7238-Model-S-B...
- anigbrowl 14y agoSo what? The Leaf is still about 1/3 the price of the Tesla car, so it's inarguably more affordable. Pointing out that the average buyer is reasonably well off is beside the point. From an environmental standpoint it's going to lead to a greater reduction in fossil fuel use in the aggregate, assuming it sees the same pattern of takeup as the Prius did.
- nhangen 14y agoExcept 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 14y agoOn the plus side, they have a calculator which lets you run the numbers yourself: http://www.teslamotors.com/true-cost-of-ownership 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?
- DannyBee 14y agoExcept, the calculator isn't great at true telling, lying by omission. Try making the cost of gas low, and electricity high, and the "savings per month" simply drops to 0 and stays there, instead of wrapping around and becoming a cost. Yeah it's an estimate, but it doesn't cover any of the basic possibilities.
- abjr 14y agoThe fact that they have the Business Tax Benefit selected by default is also very disingenuous.
- nhangen 14y agoWhat I want to know his how much I'm writing a check for every month. The rest I can figure out on my own. The fact that they shaded the initial number in order to close the sale is deceiving, and honestly, surprising from a company I previously held in high esteem. It's not that this practice is uncommon, it's that I wouldn't expect it from Tesla.
- smackfu 14y agoWow, that is certainly an interesting calculator. * Going from the $10k CA incentive to the $7.5k other states one changes the monthly from -80 to -11? Is the incentive sunsetting or something? * The default settings assume you are using it for business and can deduct the cost. Just unchecking that makes it significantly more $$$. * The gas savings assumes your gas car gets only 19 mpg and requires $5 gas.
- Bromskloss 14y agoA put option for what?
- jcampbell1 14y agoThis 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 14y agoAnd 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 14y agoWhat 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.
- cantankerous 14y agoThe 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.
- flyinRyan 14y agoThat word "subsidize" is going to need a trip to the chiropractor after that level of twisting it.
- meepmorp 14y agoI'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.
- SilasX 14y agoBut 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?
- jcampbell1 14y 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.
- SilasX 14y agoGood points, but: >Tesla doesn't have a cool $1B in cash laying around to make 15,000 car loans. Tesla doesn't need the cash in reserve to make loans to buy Tesla cars; such a "loan" in that case would simply mean "not requiring (immediate) payment". It certainly means forgoing some liquidity, but that's not the same as them having to come up with the purchase price for all their cars; they're paying themselves anyway.
- alexscheelmeyer 14y agoBecause 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.
- tanzam75 14y ago> 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. No. Only central banks can create money by printing it. An ordinary bank (commercial, S&L, or credit union) cannot loan out more money than they take in. That's why it's called "fractional reserve" banking -- i.e., a "fraction" of deposits is not loaned out, but is instead held in reserve. The 10-fold expansion of the money supply is caused by the multiplier effect, not by banks printing money. The only way to avoid that is for the bank to make no loans at all. Any fraction -- whether 1/10 or 9/10 -- will still lead to a multiplier effect. It's just a matter of how large you want the multiple to be.
- MikeCapone 14y agoTesla has released an official video of Musk explaining the broad strokes of the financing plan: https://www.youtube.com/watch?v=twC1d-HEfJw&list=UU5WjFrtBdufl6CZojX3D8dQ&index=1 https://www.youtube.com/watch?v=twC1d-HEfJw&list=UU5WjFr...
- tokenadult 14y agoLee Iacocca used to be called a great entrepreneur for some of the same specious reasons.
- damoncali 14y agoNot 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.