Tesla (NASDAQ: TSLA) Offers Model S Financing Plan

Brian Hicks

Written By Brian Hicks

Posted April 4, 2013

Tesla Motors Inc. (NASDAQ: TSLA) announced a radical new financing plan for the hot Model S this week.

The new financing plan is basically a lease-style arrangement. Jointly backed by Wells Fargo & Co. (NYSE: WFC) and U.S. Bancorp (NYSE: USB), the deal essentially permits qualified customers to make a down payment of a mere 10 percent of the purchase price in order to take home the Tesla Model S.

Additionally, a minimum guaranteed resale value after three years comes as part of the package. However, early analyses expressed some skepticism as to just how far-reaching the impact of Tesla’s financing plan might be.

Bloomberg reports:

“Our early analysis suggests that while the program is likely incrementally positive, it may perhaps not prove a game- changer in terms of demand,” Ryan Brinkman, a New York-based analyst for JPMorgan, wrote in an investor note today.

To wit, Tesla appears to have made some fairly “liberal” assumptions in calculating the benefits of its deal. For example, the company has assumed that customers reside in states with handsome subsidies and other qualifying tax deductions.

tesla-motor-model-sOn the other hand, it’s undeniable that the Tesla S has made waves in automotive circuits, and recently, company founder Elon Musk disclosed that unusually high demand means Tesla is riding on sales of the Model S to post its first quarterly profit.

The Tesla Model S has a base price tag of $69,900. That’s before the federal tax credit for EVs, which can be as high as $7,500—and that’s exactly what the Tesla S qualifies for. Upgraded models of the Tesla S, featuring more powerful batteries and other attributes, push the asking price up around the $100,000 mark.

The basics of the financing deal are simple. Based on a 10 percent down payment, combined with the federal tax credit, it’s possible to take home the Tesla Model S with almost no money down and at a cost of only $500 a month. Then, it’s basically a five-year loan at an interest rate of 2.95 percent.

After three years, there’s an option to sell the car back to Tesla. Here, Tesla has pegged the resale value to that of Daimler AG’s Mercedes-Benz S-Class sedan (which retails from around $96,000 onward today). It’s a bit unclear just how this pegging arrangement was devised, but it is noteworthy that Daimler is a Tesla stockholder.

So the residual value percentage would be equal to that of the S-class sedan after the same period. In other words, if the S-Class sedan is worth half of its retail price after three years, then the Model S seller would be assured of getting back at least half of the vehicle’s original purchase price.

Of course, should one choose not to sell, then the arrangement continues through 63 months from the date of purchase.

KBB.com’s Alec Guiterrez told CNNMoney that “the guaranteed residual value is the most striking feature of the plan.” This is important, since the embryonic EV market has yet to get a good sense of what residual values may be like for plug-in EVs, and this factor is certainly something that has deterred would-be EV purchasers.

Clearly, Tesla is hoping that its guarantee of (at the very least) cushioning any possible future blow is something that would persuade people to go for the Tesla Model S.

However, as Bloomberg reports, several analyses including those of Wired.com and Mashable viewed Tesla’s picture of projected cost savings as rather weirdly structured. For example, Tesla claims that you can “buy the 60-kilowatt Model S for $400 or $500 a month.”
However, this claim compares ownership of the Model S with a standard gasoline vehicle, but also assigns monetary value to time saved by a single driver using carpool lanes.

Nevertheless, over Q1, Tesla has indeed exceeded earlier sales projections by at least 250 units. Last month, the company even returned $465 million in loans originating from the U.S. Energy Department—five years ahead of schedule. That made for a one-time benefit over Q1 amounting to $10 million which, combined with the Model S’s increasing sales, has made Tesla look very good indeed.

So far in 2013, Tesla shares are up 24%.


If you liked this article, you may also enjoy:

Angel Publishing Investor Club Discord - Chat Now

Brian Hicks Premium


Hydrogen Fuel Cells: The Downfall of Tesla?

Lithium has been the front-runner in the battery technology market for years, but that is all coming to an end. Elon Musk is against them, but Jeff Bezos is investing heavily in them. Hydrogen Fuel Cells will turn the battery market upside down and we've discovered a tiny company that is going to make it happen...

Sign up to receive your free report. After signing up, you'll begin receiving the Energy and Capital e-letter daily.