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Tesla Unveils New Finance Product (teslamotors.com)
438 points by antr on Apr 2, 2013 | hide | past | web | favorite | 256 comments

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.

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.

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...

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.

What is the spirit of not providing the tax credit to leases as well as purchases? (Actual curiosity, not trying to imply anything.)

I'm guessing one of the main concerns is avoiding the scenario where a bunch of people pass around a single car, and each claims a huge tax credit while not helping the environment (as much).

The current rule is that only the first sale or lease of a car generates a tax credit; in the case of a lease, the leasing company takes the credit (see http://www.fueleconomy.gov/feg/taxevb.shtml , under "Requirements").

Somewhere between tax fraud and the current rule are some legitimate scenarios we probably do want to encourage (like buying a few-year-old electric vehicle instead of a new one, or the same electric vehicle getting leased out multiple times), but these scenarios are:

  1) Harder to monitor
  2) Too long-term to be compatible with the short-term nature of these tax cuts, and government budgeting in general.

What's wrong with giving the tax credit to the leasing company? That just allows them to price it lower. (Similarly, it ideally doesn't make a difference whether you apply sales tax to consumers or sellers. The equilibrium will adjust so that the net money paid/acquired by each will be the same.)

I'd prefer the money go directly to the consumer.

1) It shows consumers that their gov't is supporting this. That's good for citizens to be aware of, regardless of whether you think this credit is a good or bad thing.

2) Ideally, it shouldn't matter but I don't trust car salesman to give consumers the best part of any deal. Consumers are generally not equal negotiators and I suspect sales people will pocket more of the tax incentive.

They can say the car is discounted to include the incentive but they may not apply the entire incentive to the discount. The more complicated a deal is, the less likely a consumer is going to get the better end of that deal.

That may be fine if you're favoring a completely free market but I prefer to side with consumers and favor protection when possible.

Thanks, that makes perfect sense. I didn't realize that the first lease also qualifies for the credit.

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

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

The residual value guarantee is pretty good though.

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

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

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

Did not know that. This will hugely increase sales.

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.

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

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

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

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

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

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

Whatever the hell it is you're talking about with mindshare and flops in peoples minds, I'm pretty sure GM and Nissan have sold a lot more electric cars than Tesla.

But they're not desirable in the same manner. You need desire when it comes to lifestyle objects like cars. It's what keeps people interested.

The Carolla and Camry are successful only for their intense desirability, it's true.

You might need desire. What I (and millions of ordinary people) need when it comes to cars is a cost-effective solution, which means resale value, parts, cost, petrol etc. Desire comes last.

Agree - Tesla taps the passion of the die hard enthusiasts. The range and performance of the Model S is comparatively exceptional to that of the Volt and Leaf. Model S is sexy and exciting and I WANT to drive it, I don't simply concede to drive it as a best option.

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

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

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

So 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.

The simplest way to make electric cars more successful is to increase the artificially low price of gasoline, e.g. By factoring in the costs of our mid-east foreign policy and a good deal of our navy since both are driven in large part by our need for oil.

I agree. But don't expect any magic.

Europe has much higher costs of gasoline than the USA. They still don't have roads full of electric cars.

We do have a lot fewer SUVs and other gas guzzlers, though.

> They still don't have roads full of electric cars.

yet. Government subsidizes 100% electrical cars heavily in the form of low / no road taxes or lease tax, and with a high amount of <100 km commuter traffic, electrical cars with their limited range make sense.

There aren't many Hummers either.

Americans drive a lot more than Europeans. I'm not sure if it's a totally fair comparison, but still a good point.

Yes. And driving less is one of the predictable reactions to higher petrol prices.

It's also a space thing. As a Brit the thing I didn't get so well before going there is how sodding big the US is, and how normal it's citizens think it is to drive to the next town over which just happens to be an hour or so away.

I was doing just this with a German foreign exchange student in Missouri once. He commented about halfway there that, if he were at home, we'd be in Poland already.

Americans will continue to drive automobiles more than Europeans if gas prices were to go to parity. Our mass transit infrastructure is laughable by comparison. Also, we're way more spread out than Europe is.

Electricity costs are significantly higher than in the USA as well.

It might be a simple solution, but that doesn't make it a good solution. The number of unintended consequences will be enormous.

For example: Will you tax diesel as well? If not, then people will switch to that, with poor results for our air quality.

If yes, then suddenly every since thing you buy will be more expensive, since it's all shipped.

And those are just the first two things that popped into mind - there will be a LOT more consequences.

So you are fine subsidizing oil companies by allowing them to externalize their costs?

Also shipping is starting to switch to natural gas; you may think this a good or a bad thing, but a tax on diesel would increase that.

No, you do it by taxing gasoline and diesel

You can discriminate between uses in a way similar to this: http://en.wikipedia.org/wiki/Red_diesel#reddiesel

Taxing fuel is very much solved problem elsewhere.

You just tax the carbon emissions.

Exactly. Tax the negative externality [1]. Let people make decisions factoring in more of the costs.

[1] http://en.wikipedia.org/wiki/Pigovian_tax

Taxing carbon emissions is a fine idea, but gasoline (and other petroleum products such as diesel) also need to pay for the costs of US mid-east policy. We've never had terrorists blow up buildings or a marine barracks because of our coal mining activity.

The costs of Middle East policy doesnt need factoring in, they are there already. And the cost of petrol isn't the same everywhere as it is in the US, and is significantly inflated by taxes in many places. Over 50% of what I pay is tax.

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

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

Electric cars are an order or magnitude simpler mechanical devices as compared to IC engine cars. Once an affordable battery chemistry (or any other cheap energy storage mechanism) is figured out, a lot more electric car companies will get started (I am hoping for a healthy 'car-kit' market). Tesla is the 'best' in the sense that it has the best technology to handle the idiosyncrasies of Li-ion battery (they like to burn themselves the first opportunity they get!).

Is the government going to see a return on those? Or is it an investment because you think they are going to be a net improvement for society? To be honest if I had a choice I would give most tax dollars to the EFF and ACLU, but if Tesla can improve battery technology and adoption of electric cars I would consider it a win.

I think they have already improved battery technology and adoption of electric cars.

That's true. I should have wrote "continue to improve".


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

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

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

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

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

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

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

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

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

Except, 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.

The fact that they have the Business Tax Benefit selected by default is also very disingenuous.

What 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.

Wow, 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.

Minor niggle, but it says "Time spent driving to a gas station and refueling". The nearest gas station to my house would take about 5 minutes to drive to, so 15 minutes isn't that unrealistic.

Having a $222 business tax discount selected by default seems questionable to me though.

I think I average 15 min per fill up when you include how far out of the way I need to drive. The gas station I use is only about 2 miles from my house but there are a lot of stop lights between here and there.

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

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

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

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.

I see what you did there.

I can smell it.

put that Google Nose to use!

>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.

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

Well, this answers 1) as well: this doc requires that "The Vehicle is financed through Tesla’s direct vehicle financing program".

Are you reserving one? The negative to this offering is I am limited to 2 lenders so I might pay alittle more in interest versus a credit union. I think this program requires an additional $8/month as well. It gives me an exit plan if for some reason I want to get rid of the car relatively easily.

Hey I'd buy one that's made today in six years time. It'll need software updates and a new battery, but I think the rest would still be fine.

I'm thinking about reserving, but it seems a bit too expensive given all the unknowns. Want to test drive one though.

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

Well, 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.

Elon could offer the same personal guarantee to cash buyers?

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

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

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

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

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

That word "subsidize" is going to need a trip to the chiropractor after that level of twisting it.

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

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.

So 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.

It remains to be seen whether Elon Musk can revolutionize even one long-standing American industry.

I 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!

It's cool to be contrarian, haven't you heard?

That's not correct. The US government doesn't subsidize SpaceX, it purchases launches and technology. It's just a customer. And it buys those things for much cheaper than before. You as the tax payer are actually saving money compared to what NASA and the DoD were spending on the big contractors.

There's no sharp distinction between selling to the government as your sole customer, and subsidies. One bleeds into the other, and it's nothing like an efficient market against which one would hope to measure entrepreneurs.

The government is not their sole customer, and SpaceX is not the government's sole supplier for any space-access service.

Many big American companies receive government subsidies - either directly or via military/gov spending. Its the smart market to be in.

"48 companies that have received more than $100 million in state grants since 2007." http://www.nytimes.com/interactive/2012/12/01/us/government-...

Tesla recieves a subsidy to offset the implicit subsidy received by other car manufacturers, because doing the straightforward thing and banning all pollution is politically impractical. If you added the cost of global warming and people poisoned by oil refineries to the price of gas cars, tesla wouldn't need a subsidy.

Indeed. I think a recent IMF study suggested the U.S. would have to raise taxes $500B annually to account for pre- and post-consumer 'subsidies', mostly to compensate for externalities.

In U.S. budget-ese, you describe costs over a 10 year span, so that's a "$5 trillon tax hike".

The point being that the EV subsidy is small potatoes. I still think it's a bad idea. Tax the gas. Let producers and consumers figure out how to use less, and let governments figure out how to compensate for the regressiveness of the tax.

Compensating for the regressiveness is easy: give it back in cash.

How much and to whom? Some poor people drive a lot. Some poor people don't drive at all.

EDIT: Also, you can't just give it all back. As long as emissions continue at something near current levels, you have to spend it on amelioration. It doesn't just become a slush fund.

> How much and to whom?

I'd say as much of it as we can, equally per-capita.

> Some poor people drive a lot.

And either they will change their behavior, or be hurt less than if we didn't give the money back. As people generally change their behavior they will likely have more options, as demand rises for alternative modes of transportation (and for goods and services that involve burning less gas) leading to greater economies of scale.

> Some poor people don't drive at all.

But they still buy goods that were shipped by burning gas. Even so, they'll benefit more than others, but I don't think that's a problem.

> Also, you can't just give it all back. As long as emissions continue at something near current levels, you have to spend it on amelioration. It doesn't just become a slush fund.

We can certainly talk about taking a piece for amelioration, but I don't think paying that out of the general fund is unrealistic; it's what we'd be doing otherwise, and it'll be way cheaper if people have adjusted their behavior to reflect the true costs of their actions.

Why? Just give it back equally, and finance amelioration out of general revenue. (Not saying that's a good idea. You could finance amelioration out of a specific percentage of that tax.)

I suspect that would cause problems for the urban poor. Possibly also anyone for whom food makes up a large proportion of their annual budget, given both how reliant growing and transporting that is on oil and how reliant farmers are on internal-combustion vehicles.

Unfortunately, I'm not finding the numbers I need to get a good estimate. The important question is what portion of petroleum use winds up servicing those poor people versus the rest of the economy, because while it is certainly true that a small percentage increase in the costs of necessities hurts these people disproportionately, the money returned is a much greater portion of their income, and could very well dwarf the increased costs (indeed, this is what I would expect).

The very worst case, of course, is any who find themselves paying higher prices but unable for whatever reason to access the stipend.

Why? The average person will come out exactly neutral. Use less petrol than the average, and you come out ahead. Use more, and you are a net payer.

Transporting stuff doesn't need to use all that much oil. Neither does growing.


Governments are the source of all wealth.

Subsidies, tax breaks, issuing debts, give aways (pork), purchases, loans, war profiteering, patents, etc.


Government even protects people's property rights.

Without governments, there is no wealth.

Personally, I'm quite proud that the US Govt is funding alternate energy, electric transportation, and space exploration. Many of the past investments have worked out quite well. I'm bullish about these investments too.

> Governments are the source of all wealth.

I have to disagree on that. Governments are the arbiter of most wealth, via taxation, subsidies, spending, the court system, etc. "Wealth" comes from production, transformation, and trade. I've taken a tree and nurtured it so that it produces fruit. The world is now one fruit-producing tree wealthier. I trade fruit with my neighbor for wool, because I value some quantity of wool higher than I value some quantity of fruit, and my neighbor values the fruit more than the wool. We are now each wealthier for trading something we have in excess for something we do not have.

The government then takes some of my fruit to feed the soldiers defending my land. Government's role in the economy is mandatory trade for the benefit of the society as a whole. I must provide fruit to the soldiers whether I want to or not. Sometimes there is a net gain through these trades (see space exploration, for example). Other times the gain from this trade is disputed (see California's high speed rail project).

He'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.

Great entrepreneurs, in my opinion, Deal with others peacefully. They don't use the power of government to force people to invest. Or "distribute the risk" (a euphemism for overriding people's choice over what risks they choose to take).

Our government distributes enough risk to me already, while letting the pseudo entrepreneurs keep all the upside. That's the reason all those credit default swaps made by Goldman Sachs and others were paid for by the taxpayer.

main quality of an entrepreneur is resourcefulness. think about that for a second.

What's the difference between that and getting a similar amount through VC?

What happens to the other car manufacturers if we remove their bailouts?

SpaceX is a supplier to the US government. That is not the same thing a subsidy. They're actually saving them money.

Tesla is a recipient of government subsidy, but you pretty much have to operate in the auto market. Everybody else (big auto companies, big oil) are the recipients of massive subsidies too.

True, subsidized means a portion of the cost is absorbed by other party. SpaceX provides a service the customer needs at a competitive market rate. It is not much different from how Lockheed-Martin operates.

What percent of the defense budget is a subsidy to the petrochemical industry?

They received 450M$ to build a luxury vehicle from scratch in two years. In the same program, other companies got 1B$ just to retrofit some fucking factory.

The subsidies are a problem, but help to balance the fact that the government isn't taxing emissions properly

Why? He negotiated some funds from the state. They aren't insuring his entire business.

that dude just keeps on pushing things... amazing

Is he putting his personal finances behind that personal guarantee?

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

Last 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.

He still didn't have to do that. It's more about signalling his confidence level. I wouldn't bet against Elon.

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

And billions of dollars.

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

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

> 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.

Good 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.

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

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

> 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.

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

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


A put option for what?

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."

"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.

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... :-)

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.

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.

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

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

    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, ...

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.

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

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!

"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

Technically this is one of the same.

In 1993, Fiat acquired Maserati from De Tomaso, but a 50% stake was sold to Ferrari in 1997 -- however, at the time, Ferrari had already been under Fiat's umbrella as a sister brand (since 1969).

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

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

You're not paying attention, he's pointing out that S-Class resale is crap. Compare it to a Lexus if it makes you feel better. The point probably won't be missed by S-Class owners (first owners) who are arguably more likely to buy a Tesla S than you or I.

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

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:


Tesla has a PDF with more precise information:


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

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.

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.

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.

> Normal leases are financed by banks

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

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

My last lease was through US Bank.

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

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

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

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

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

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

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

> Tesla's program requires 10% down, almost unheard of for a lease

As I understand it, the down payment is roughly offset by the tax credit, so the experience of the buyer/lessee is similar to a normal car loan.

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

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

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

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

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.

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.

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).

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

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

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

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

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

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

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

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

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?

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

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

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

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

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

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.


That results in "ridiculous numbers"


in Tesla's latest financial claims.

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.

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.

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

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

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

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


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.

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.

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."

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.

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

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.

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).

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.

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.

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

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

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

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


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

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

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

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

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

Is that supposed to be a modus tollens or a modus ponens?

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

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

This site claims the true cost of gas is $15.40:


This article at $12.75 from May 2011:


Subtracting the $4 price of gas is what brought me to $8, conservatively. To be fair, some of the price paid at the pump is tax, but according to the previously linked wikipedia article that's 12%, so $0.48 for a $4 gallon.

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.

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

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

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.

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.

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.

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.

Thanks for that. Nice find.

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.

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.


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"

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.

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?)

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.

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

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"

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.

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

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.

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.

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.

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!

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.

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.

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.

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.

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

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

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.

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?

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.

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

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.

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

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?

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

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.

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.

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).

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.

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.

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.

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.

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. :)

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

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

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

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

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

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

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

This is just the kind of creativity Detroit is lacking.

i think you have good price

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.

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.


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.

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

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