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Big Announcement=Leasing

Big Announcement=Leasing

Looks like leasing is here!

Nicu.Mihalache | April 3, 2013

@ddruz@aol.com

this is not about integrity; it is simply smart marketing, especially that you can uncheck savings that you do not realize in the calculator

anyone who is upset you cannot pay only $500 per month for 5.5 years (with interest) and own a $70k car afterwards is no different than those people who were very disappointed with Apple not selling the iPhone 3G at $200 (unlocked, free of contract) as in the US (that was a $600 phone, carrier subsidized at $200)

jdesmo | April 3, 2013

Beware of he who is blinded by a huge and ever inflating ego. They act as if they can do no wrong, and everyone else is pining to absorb any and all of this smoke & mirror rubbish. Or is it a whiff of desperation?
I'm not however, selling my TSLA shares just yet.

Benz | April 3, 2013

It actually is a good way to "buy" the Tesla Model S via a loan which you pay back in monthly payments. I personally would not sell the car back to Tesla Motors after three years, instead I would keep making the monthly payments till the loan is finished.

As many people just do not have such an huge amount to buy a Tesla Model S and pay the full price all at once. I think this is a great move by Elon Musk. By this move Elon Musk has reached out to those people who can now afford it to drive a Tesla Model S. So, this move is good for both Tesla Motors and the public as well. Well done.

electrolight | April 3, 2013

@ Kilimats

I have 1115 shares of TSLA @ $35.90 I could be wrong but I predict they will be
worth from $ 44.00 to $ 46.00 by next quarterly announcement in mid May

I have been trading stocks for many years. Tesla has all the makings of a true winner.
They are a game changer, have a unique product ( who else makes an EV with laptop batteries
that travels up to 300 miles per charge. Thousnds of cars pre sold...I could go on

Plus Mr Musk has 2 other very successful companies....

jk2014 | April 3, 2013

Bottom line: no one outside the current target market will ever pay 1k+/month for a car. Period.

The calculator was there on the last version of the website. This one just adds the meaningless metrics of personal time cost.

It really isn't about affordability. It's about assurance that the car will have value after three years.

The rest is smoke and mirrors. Very bad smoke and mirrors. Not a good PR or marketing move.

This announcement degrades Elon's credibility if he considers it more "affordable."

It is not even close to being a model like solarcity either.

He will need to redeem himself with a great announcement in the coming weeks. The market and customers want fantastic news on the superchargers. Please pay attention Elon!!!

Getting Amped Again | April 3, 2013

I'm glad there is some sort of 3-year resale value being established, and applaud Elon's move to do so, however, the $500/month "bait and switch" is just going to give the EV naysayers grist for the mill. John Petersen is going to have a field day with this. Even my son emailed me and said "Did you hear you can lease a Model S for $500 a month?"

Like the 300 mile range thing, this should have been handled with a bit more transparency, IMO.

torst1 | April 3, 2013

@electrolight

Trading for years and still making silly bets - why?

If you can't afford the car don't buy it assuming stocks will pay for it.
If you do you are no better then the besserwissers in casinos that think they have a water tight plan when they keep doubling their bets on the blackjack table - hoping to strike it big. And within few minutes realizes their cash pool is drained long before the do win big. And believe you me - it does not take that long before they walks of in shame. Not a penny to their name.

While the product is great other companies might easily make a carbon copy of Tesla's batteries. Before you know it there might be 5 existing car companies that uses the same approach. Or maybe the reality of European market sends all stocks down for the next 1-3 years. Meanwhile you must sell your shares every month for less then your buy in just to keep you payments......your stocks might just run out before your final payment.....

pilotSteve | April 3, 2013

reminds me of the old car salesman training maxim: "sell the payment not the car"

vgrinshpun | April 3, 2013

I agree with you , jk2014.
In spite of having some merit, this financing product is missing an opportunity for lowering the entry point and drastically increasing the rate of reservations. On other hand one should keep in mind that Tesla had to keep banks on board. I feel that they did not want to go along with a pure leasing product with agressive residual value (50-55%) and significantly lower payment.

The salesmanship, however, was really in bad taste as far as I am concerned.

The silver lining might be in the market over reaction promoted by the bears. Given solid Q1 results and, hopefully, more substance and less spin in the future announcements, there will be a nice up tick in stock price going into the release of official Q1 results.

geodan | April 3, 2013

Oh this is great, been waiting to hear about this 'lease-ish' program. I normally just like to have a new car every 3 years, so when my Bentley lease is up i'll make the switch to Model S. Was really impressed with the handling/power/solid feel to the car. The Fisker Karma drove like a wooden roller coaster...

I respect the heck out of Elon Musk for pushing the development of these cars and the infrastructure to support them!

wmgasfree | April 3, 2013

The new financing program is not a lease, but a 63 month (changed from 66 months overnight) purchase program with the option to turn in the car after 36 months with a guaranteed value of 43%. So is this program a good deal? Simply stated I believe NOT. If you plan to keep the car past 36 months, using traditional financing yields a better result. Using comparative math, we can calculate that the new financing program is less advantageous!

I used my own car (85kWh, Pano Roof, Active Air, Metallic Blue, Leather, Tech, Sound Studio, 19" Wheels) for the example. The out the door price for my car was $97,149 (including CA tax and license). Granted this represents pricing before the price increase, so I adjusted for the additional $2,500 plus tax to arrive at $99,874. I assumed that the vehicle was 100% financed (recovered the $5,000 deposit) to put the transaction on par. I also assumed the current PenFed interest rate of 1.74%, even though my rate is 1.49%. So what is the outcome?

Traditional Financing

$99,874 for 60 months at 1.74% yields a monthly payment of $1,739.23. Over the 60-month life of the loan you will make total payments of $104,353.80. When you subtract the $10,000 on CA and federal incentives, you are left with a net out of pocket of $94,353.80.

Tesla Financing Plan

Using an identically equipped car the monthly payment under the Tesla Financing Plan comes to $1,380.00 (63 months at 2.95%). However, this payment does not include tax and license, which if financed to be consistent with traditional financing, would add $151.88 to the payment for a total of $1,531.88. Over the 63-month life of the loan you will make total payments of $96,508.44.

Conclusion

As you can see, the Tesla Financing Plan will cost a buyer $2,154.64 more than using traditional financing. So what do you get for this that is not included with a traditional purchase? The only additional benefit is the 36-month guaranteed repurchase at 43%. Based on my car, adjusted for current pricing, the repurchase price would be $39,138.60 ($91,020 x 43%). So where does this lead you when you compare to the amortization of the 63-month loan? The loan balance at 36-months based on the above Tesla Financing Plan would be $40,225.17. Therefore, if the 43% is an accurate representation of the value at 36-months, you would need to pay $1,086.57 to get out of the car.

Additionally, if this program is successful and the 43% turns out to be an accurate reflection of the value at 36-months, all buyers, including those that use traditional financing will benefit from the value floor that this creates.

All-in-all, this was an uninspiring announcement and included a lot of funny math to make the car look more affordable. While I applaud the effort, intelligent buyers should see through the smoke. That said, I hope this brings added visibility to the brand and adds long-term sustainable value to Tesla. As a current owner, it is in my best interest for Tesla to succeed and to see more Teslas on the road!

jk2014 | April 3, 2013

Bentley owners are within the primary market. This annoucememt was about broadening the market through implementing a "revolutionary" financing product to make a Model S more "affordable."

This was a non annoucement with respect to affordability.

And as far as Elon putting his money where his mouth is, it's completely laughable. He's not risking one dime. Read the parameters of the guarantee deal and you'll see nothing risky about backing the model s.

If elon wants to send a message to the market about putting his money where his mouth is an really see reservations jump and the market respond in a big way, pay for the nationwide expansion (and European) of the supercharger network out of his own pocket. That's a real big deal worthy of the hype.

dstiavnicky | April 3, 2013

Leave the $500/month 'marketing oversell' for ICE makers trying to survive. Telsa should have offered the program and let intelligent buyers decide for themselves.
The $500 Telsa can be the Gen III in a few years...

herkimer | April 3, 2013

+1

The Lease/Purchase plan is interesting and has merit. Elon's resale price guarantee is gutsy and shows confidence. BUT .... the $500/month marketing mumbo jumbo is dumb and counter-productive, running the risk of providing cannonballs to the enemy!

TESLA, PLEASE! take this marketing scheme back and in a hurry!
It is unnecessary at best and foolish at worst. The Finance scheme is worth the gamble, but don't take a page from sleazy car dealer sales talk!

jk2014 | April 3, 2013

Cut the marketing of revolutionary affordability.

Lead with elon musk personally financed guarantee of resale value.

That's it. Move on to the next annoucement build up.

Brian H | April 3, 2013

The buy-back about equals the residual loan at 3 yrs, so the buyer/leaser can just "walk away". That's what the floor guarantee assures.

As I explained elsewhere, the $500 figure attempts to quantify some hidden emotional factors and benefit that are part of the individual calculations and decision-making, though perhaps not of a business'.

In economics, a "good" is anything anyone puts value on and is willing to pay for, including intangibles (such as "good will").

electrolight | April 3, 2013

@ Torst1 I really appreciate your concern for me & taking time to express on this forum.

I must admit when I saw my TSLA shares go up by over 20% the other day I did get pretty excited.

I have lots of time on my hands these days so I have been doing lots of research on the future
of transportation & there is a big push towards EV . The fact that most states & provinces
Give huge rebates on EV's speaks for itself.

Also I did not fully understand the lease buy program I thought the payments on a 60 kwt
vehicle was aprox. $500.00 per month. I now understand it is the so called " Effective payment"
The real payments would be over $1000.00

As for doubling my bets at blackjack I tried that once I only brought $50.00 with me so I didn't loose
much.
Buying shares can be a risk but investing in Tesla is a risk I don't mind taking. I have been hoping
for years that there would be a big movement towards Electric vehicles. I don't have the expertise
to build EV's but investing in Tesla is my way of contributing & being part of something I believe in.

I live in Canada & I really don't like what's happening in Alberta with the tar sands. All in the name
the economy. The sooner we loose our dependence on petrol the better off we will be.
I think the world & the economy can function quite well with clean sustainable energy.

As for buying a Tesla with the profits from my shares maybe I'll go back to plan A & see how
my shares are doing when Gen111 comes out.

eAdopter | April 3, 2013

I think the most important news is being overlooked: Elon seems to be stating possible depreciation of 57% in only 36 months. That's not good. MB depreciation rates are not good and I don't think TM should be using them for comparison. It's reenforcing the idea that the Model S is, like a new MB S-ClasS, only for the elite with money to throw away. I don't think it has to be. I'm not rich and can afford a Model S. A benchmark such as a Honda Accord or Civic would have impressed me.

Tiebreaker | April 4, 2013

@Brian H - $6000 after 3 years, knocked from the guaranteed buy-back price. That's +$166.66 a month.

Tiebreaker | April 4, 2013

@eAdopter +1

Getting Amped Again | April 4, 2013

I have something they left out of the "How much is your time worth?" calculation.

"Enter time wasted on Tesla forum."

Now my S is practically free! Or possibly TM owes me money!

Andre-nl | April 5, 2013

The people bashing Tesla and Elon for the TCO calculations should stop and think for a while what Tesla is trying to achieve.

Let me start out by saying that I don't think the scheme deserves a prize for elegance. But marketing has always had this ugly side and I don't think Tesla can change the world on its own. To a certain extent, it is forced to go along in the game as it is being played.

There are no smoke and mirrors here, as some argue. The caclulation is just 1 click away. Very transparent and open, you can change the parameters freely to suit your personal situation and get your 'relative' TCO figure.

We all know that an EV has cost advantages, but few people take this into consideration when comparing cars. It is mostly about sticker price/monthly payments. When comparing two ICE's this works rather well, since running costs for cars in the same price category tend to be comparable. But it fails when shopping for an EV.

This is an attempt to get people's attention, make them pause and think for a few seconds. Sure, some potential buyers will be disappointed to learn that they'll pay more than $500/mo. This will be a minority, since most people are smart enough to suspect such a thing. But the disappointment wears off, what sticks is the message. In the end, effectiveness beats elegance.

Mark K | April 5, 2013

We all want TM to succeed at broadening their market, and this hybrid purchase + buyback option is a novel innovation.

But the $500 headline on the website is a huge marketing blunder.

Buyers will write monthly checks for $1100 - $1700. The economic benefit offsets are not experienced synchronously (like tax breaks for example), so the buyer still has to front the cash..

The average prospect will say "If this really costs only $500 a month, why I am writing $1200 checks?"

Counting the costs you didn't pay conflates relative savings with hard costs. They are not the same.

What the average buyer will compare is the monthly check he writes to TM vs. BMW.

It takes a few leaps to realize the offsets. instead, it would have been much more credible to talk about annual savings.

"Save up to $6,000 a year vs. a comparable gas car."

That statement would be much easier to explain and defend.

Instead, the misrepresentation in the headline sullies the integrity of the brand, and is a significant error of judgement.

It sets TM up for easy criticism that stabs at the heart of the buyer's willingness to make the leap of faith. This trust is crucial to overcome the doubt about a new company and a new technology.

There are an amazing number of brilliant moves by TM. "$500 a month" in bold print is not one of them.

There are far better ways to articulate the genuine benefits.

Andre-nl | April 5, 2013

"It would have been much more credible to talk about annual savings."

Monthly savings are annual savings divided by 12. What is the big difference?

When people lease, it is all about monthly price, so presenting the gas savings as a monthly amount instead of an annual amount makes a ton of sense.

The only extra step that Tesla has performed is subtract those monthly gas savings (and some other, more questionable ones) and then advertise that price to get people's attention.

Nicu.Mihalache | April 5, 2013

@Andre-nl, spot on!

Those who will never write check of more than $500 / month would not buy a Model S in any case. But at least they know Tesla exist and will come back later for Gen III (which will be advertised at $0 or negative / month LOL).

But Tesla will also gain a lot from those who afford a Model S and take a second to consider the entire proposition.

The first and most important battle you have to win in marketing is let people know you exist!

The vast majority (80+%) of people in the US have never heard about Tesla. In Europe you are at 90-95% and outside those two 95-99%. Many of those people could afford and would consider a Model S if they knew about it.

jk2014 | April 5, 2013

+1 Mark K

ddruz | April 5, 2013

+1 Mark K also. But the $500 headline on the website is a huge marketing blunder.

Mark K | April 5, 2013

There's nothing wrong with explaining the benefits. That's essential to selling.

The fumble is the way they communicated it.

DouglasR | April 5, 2013

There is a big flaw in the logic of this calculation. It is appropriate to consider many of these categories -- the cost of electricity v. gasoline, shorten your commute, avoid the gas station -- if you are comparing this car to a different car. But the calculation doesn't do that. It simply tries to estimate the "total cost of ownership" of a Model S. The cost of gas should not be a deduction from the total cost of ownership; rather it is an addition to the total cost of ownership of a competing car. Subtracting the value of these categories creates an artificially low number. It's like saying I bought a $100 item on sale for $50, subtracting the $50 savings from the price I paid, and then claiming I got the item for free.

Some might say a competing car is implicit in the calculation. But if that were the case, what would you do about the cost of gas for the competing car? You couldn't add it to the TCO of the competing car, because the savings have already been subtracted from the TCO of the Model S. It just doesn't make sense. Moreover, the costs are not fairly compared. Why is there no place to enter the value of my time spent waiting for the Model S to charge? Why is there no place to add the cost of the Service Plan or the Data Plan?

I love my Model S, but this marketing effort insults my intelligence.

Mark K | April 5, 2013

DouglasR - precisely.

If BMW said a 3 series was $299 a month, after subtracting $150 for the gas you'll save compared to the 7 you didn't buy, we would say that's ludicrous. The cost is 449. How does BMW know what I did not do?

Industry practice is to put a cash number in that spot on car adds promoting a lease. In the TM front page ad, it It is presented in the same graphical headline manner to invite that interpretation. But it is absolutely not the same number.

Customers will assume it means the same thing and then get very mistrustful of
TM when they read the fine print.

The longer they do this, the more hits they will take. That we have to point this out is scary.

Brian H | April 5, 2013

A different way of trying to ask the rhetorical question used to highlight the 5-10 year TCO advantage on Teslarumors.com "Can you afford NOT to buy a Model S?"

Mark K | April 6, 2013

TM's intrinsic value proposition is so strong, there are many powerful ways to convey the economic benefits without the need for any hype.

The discipline of precise logic, a physicist's respect for fact, and a humble, soft-spoken presentation are Elon's trademark qualities. And what excellent qualities they are.

The 500/mo headline, based on systematically cantilevered assumptions, is a discordant note that clashes with this personal brand.

TM can win this cleanly, by walking tall through the front door.

The calculator is great, but the headline is wrong.

Focus on what they'll save, not what they'll spend.

They will do the math themselves, and like it.

ddruz | April 6, 2013

The calculator is great, but the headline is wrong.

This is it in a nutshell. They need to drop that $500 headline.

Very misleading. Very bad impression of integrity of Tesla.

DouglasR | April 6, 2013

It's more than that, ddruz. The calculator should not be subtracting amounts from the basic loan payment. For example, it needs to ADD the cost of electricity for the Model S, then set up a competing car and add the cost of gasoline to that car. It's more than just the headline; it's the math.

Mark K | April 7, 2013

DouglasR - Yes, the calculator needs those plumbing changes for the logic to be sound. But they clearly should not advertise a calculus of all the knobs turned to 11.

hoffa24 | April 12, 2013

The buy back at 43% is not what is it seams. Because of the federal tax rate, there is an additional automatic $7500 depreciation the moment that the car drives off the lot compared to a comparable car. The depreciation is also not proportional. If the total cost of the car is $57500 or $100,000 the tax credit "depreciation" is anywhere from 7%- 15%

DouglasR | April 12, 2013

huh?

hoffa24 | April 13, 2013

the 43% was based upon the average depreciation for a Mercedes. My point from the previous post was that the tax credit artificially adds depreciation of 7- 15%

Brian H | April 13, 2013

?? Seems as though it reduces the depreciation, to me. The 43% would be calc'd on the full price, I assume.

nickjhowe | April 13, 2013

+1 @Brian H

DouglasR | April 13, 2013

Ok, I think I see what hoffa24 is getting at. This has nothing to do with TM's buyback offer. The tax credit gives the first purchaser of a Model S a benefit that is not available to any subsequent purchaser. This is not exactly depreciation, but it does mean that the first purchaser should be willing to pay more than a subsequent purchaser for any given car. This would be true regardless of whether the car is sold back to TM or to a private party.

But Brian is right. If TM's 43% offer is based on the car's retail price (before the tax credit), then it is actually a better offer than that of someone paying 43% of the original purchaser's net cost.

hoffa24 | April 13, 2013

That was my point. It is in the tesla owner's favor and better than the mercedes they are using as a benchmark

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