Tesla Motors Offers Lease Program for Model S

By · April 02, 2013

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2013 Tesla Model S

Tesla Motors on Tuesday announced a financing program to make the luxury electric Model S sedan more affordable to a bigger part of the market. In a best-case scenario, when including the widest range of net ownership issues, some prospective buyers could purchase a Model S with little or no money down, and monthly payments as low as $500 to $600 per month.

The Tesla Motors website launched a Total Cost of Ownership calculator to determine the numbers for specific buyers, more accurately representing monthly payments of $1,200 a month for the 85-kWh Model S, and $1,050 for the 60-kWh version.

Under the financing deal, a purchaser's federal and state tax incentives are directly applied to the down payment, with any remaining amount applied to the monthly payment.

A Model S leaseholder would have the right to return the car to Tesla after three years—or to keep the car by continuing to make payments for five years.

With the right to give the car back to Tesla, the company is guaranteeing the residual value of the car, and allowing the Model S owner to switch to another Model S, or simply walk away. That guaranteed residual value matches the percentage residual value guaranteed for a Mercedes S-Class. (According to Kelly Blue Book, the residual value of a Mercedes S-550 V8 twin-turbo four-door sedan over 36 months is 47 percent of the original price, $95,900.)

During a conference call to explain the program, CEO Elon Musk said he would use his personal fortune to honor the residual value guarantee, if Tesla Motors was unable to cover the cost for any reason. The promise was apparently made to quiet any concerns about the fate of financed vehicles in case Tesla encounters dire financial problems.

Salesmanship, and Need for Bigger Market

Tesla urged potential buyers to consider a wide range of factors related to the lease deal—including the lower cost of electricity as a vehicle fuel; potential business tax benefits; and time savings from not having to stop at gas stations.

This “include everything” methodology—California buyers get a $7,500 federal tax credit, plus a $2,500 rebate—would put the effectively monthly cost of an 85 kilowatt-hour Model S at about $650 per month, if considering the cost of premium gasoline at $4.50 a gallon. As this and other scenarios offered by Tesla indicate, the math very quickly gets fuzzy.

The financing program was developed in collaboration with Wells Fargo and US Bank, and applies to customers in the U.S. Similar deals will be rolled out in Canada, Europe and Asia when sales launch in each region, collaborating with local banks.

While Tesla portrays this deal as a way to drive a Model S for no money down, with payments of $500 a month, it can also be viewed as marketing spin designed to put total cost of ownership (complete with a guaranteed residual price) in an artificially beneficial light. In that sense, it also reveals Tesla’s need to slip into a more aggressive sales mode, adopting clever sales techniques employed by traditional car companies.

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