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Elon Thursday Announcement

Elon tweets:

"Really exciting @TeslaMotors announcement coming on Thursday. Am going to put my money where my mouth is in v major way."

What do you think about this?

I think that many people in the USA will at least consider this Tesla Model S lease option, the next time when they will choose another car for lease. This Tesla Model S lease program really could result in seeing many more Tesla Model S cars on the American roads. And that's what this is all about.

The $500 already takes credit for all savings plus personal time value; it's a stretch, though some would agree with it. High gas prices like Europe's make the number a bit more plausible. But it's not what the bank/lender sees; they get the full $1K plus from you..

Yeah, but in Europe the car is more expensive and people who drive 15,000 miles (24,000 km) a year are rare.

I think some individuals in some parts of the US can thread the needle to get to a $500 per month TCO, but not most. And those who can probably don't need to. If your time is truly worth $100 an hour net, you are making 208K plus per year after taxes, you can afford more than a $500 lease. It's a gimmicky number no matter how you look at it.

This plan is great for those who were on the edge of affordability before, but the Model S is not a $500 per month car. And really, why should it be?

It is important for many who lease and marginal buyers and though many will not be personally swayed by it, it does positively effect the entire Tesla community in that it effectively gets more Model S on the roads, economy of scale is a good thing for TM, buyers and current owners (think about availability of parts and service centres, and expansion of the supercharging network). I hope a similar financing product will be rolled out in coming months for our friends in Europe, where the numbers make an even stronger case... Freed from the economic burden of the pump Europeans might be able to really enjoy motoring again like North Americans do.

Honestly I was more excited about the earlier announcement with the upgradable 40kwh and non-SC 60s. Firstly it shows that TM treats its customers right and makes a product that 'grows' with the customer even at the entry level. Before, I was concerned about how the 40 reservation holders were going to be taken care of - how a company takes care of a certain group of customers is indicative of how they care for all the the others down the road.

Tesla has proven that it is a a car company very different than any other, not only by having the best product on the market but by making its products available and attractive to the widest segment of the market possible without watering down quality.

Bravo TM!

How does it get more model ses on the road when only the target market can afford the car payments??? There is nothing more affordable about this lease-to-own program then what was available already.

The real issue at hand is resale value. If a potential customer is on the fence because they have concerns about resale, then they will put in there reservation now (or not) because they have a definitive answer. I'm not sure there are a large number of potential customers within a broader market that have made this there key decision making factor. Therefore, I don't think it will pull in customers willing to pay 1k+ that once were willing to pay 500-800. It's not a good enough economic incentive to make the jump up. Have to offer a real world cash savings incentive (other than gas) to broaden the market. This announcement won't do it.

The car will sell itself, creating that loyal customer that will buy again. Figure out how to make actual monthly payments come down you will broaden the market and expand that loyal customer base. Just have to actually deliver on the promise on a revolutionary financing product.

@jk

Hmmm has the CEO of ANY other company large or small made that sort of personal commitment to its products?

My guess is that very few 'leasees' under the programme will want to return their cars. Some of the MS's that do return maybe will be trade ins for Model X's, judging from the lack of buyers remorse a tiny few will not buy Tesla again. The cars returned likely be sold quickly and profitably by TM like TM is doing with used Roadsters now.

Making the Model S easier to buy gets more out on the road, how many more than if the offer was not put out I am not sure, but if it means only a few thousand more get to experience the MS it will be a success. Consumers are less convinced by ads and more impressed by their friend, coworker or neighbour who owns a MS and LOVES it! Dispersion of the product sells more, and if this gets more MS's out there than it is a good thing for all.

FL

It is not any easier for the broader market to purchase a model s then it was yesterday. How many people actually paid cash for their model s? Not many! They financed it.

The problem is this lease program is more expensive.

Have to consider paying over 1.2k each month for a car payment as a massive, massive barrier. It will not create a broader market. Period. It is the reality.

It is imperative to create a financial product that will bring down a lease payment between $500-$800. Tesla has not done that here. If payment cost is the barrier to affordability, then this product fails miserably.

Best thing Elon says is listen to your friends and listen to negative feedback. Please do that here with regards to affordable payment plans for a broader market.

@jk2014

Although I do think that Elon Musk has introduced a good financial plan, I think that you also do have a good point regarding the high amount of the monthly payments.

So, how about extending the period of the monthly payments from 63 months to for example 96 months (8 years), or even longer than that? Would that be a possible solution to bring down the amount of the monthly payments? It's just a thouhgt.

And I do think that people would certainly prefer to keep the car, even after the monthly payments will have finished.

@Benz

Given the principal on the loan you are right that extending the lending period would bring down the monthly payments.

However, and this is an important economic lesson for you:

- Borrowing money is ALWAYS more expensive than financing with cash
- The longer the period you borrow the more you pay on interest in the end due to: 1)you pay interest on the principal for a longer period and 2) the interest rate is higher since it is riskier for the creditor to lend money for a longer period.

So while it may reduce cost on a monthly basis, it increases the cumulative cost!

Furthermore, there are also other reasons why banks won't extend the period, for instance, cars are not very good collateral for a bank to lend you the money. I think the reason is obvious ;-)

The program is an excellent one to potentially get more people into Teslas. Problem: It only applicable in a few states. It is not available to me in Delaware. I have inquired if the 'buy back' part of it would be applicable as I arrange my own financing. Have not heard back yet from corporate headquarters but my inquiry about this at the regional sales office was that it was not available.

jk;
You obviously do not believe the posters who are going way outside their normal purchasing patterns to acquire the MS. The "target market" is not what you think.

Bart;
depends entirely on what return you can get with your cash. If it significantly exceeds the borrowing rate, it makes more sense to borrow and pocket the difference. Many have decided their liquid assets (cash & equivalents) would be better spent on TSLA stock, for example, and finance the car. Borrowed money is very cheap right now, as the inane "Quantitative Easing" (= Fed printing money with no backing) continues.

The best thing for Tesla is to continue negotiating with the banks. Need to see where they are willing to go as far as extended repayment periods and low interest rates. Go at it maybe like solarcity did and assess the model s as a different or hybrid asset class. I think the broader market customer that may own the car longer, maybe beyond 8 years since the gas/maintenance savings will be substantial the longer you own it. If banks don't feel comfortable, then tesla could offer to absorb some of the risk themselves in a creative way.

I think the announcement was revolutionary because Tesla was able to develop a lease program with major banks on a vehicle that really has no comparison and no track record. In addition to profitability, this shows the world that Tesla has been accepted as a real car company and is here to stay. Gives current and future loyal customers peace of mind. Elon just had to offer up his personal assets as collateral to do it. The sentiment behind the announcement was a celebration of validation. If Tesla would've made this its narrative for the announcement, I think it's reception would've been better.

In addition, Tesla could offer car services, taxi, government transport special mileage allowances/discounts. Might be the one thing keeping thousands of additional reservations from happening today...

@Brian H

In my argument I reasoned about purchasing a Tesla Model S and financing this with either cash or a loan.

It is true that if you purchase the car with a loan, you still have the opportunity to purchase stock or make another investment with the cash.

Though, and this is important to keep in mind, you are comparing 2 things in an unfair way:

- comparing a consumer purchase with an investment
- comparing assets with a differing risk profile (cash versus stocks)

You have to take into account that in the end you still have to payback the loan, and the outcome of the investment you made with the cash is highly uncertain while if you directly paid with cash, the uncertainty would be 0.

You would have been right if the return you can make with the cash would have had the same risk profile as the cash itself.

Keep in mind that if your reasoning was sound, then it would make sense to borrow as much as you could in order to invest it. But, due to the different risk profiles this is not the case: borrowing money for the car while investing the cash is speculating.

While speculating may bring you great benefits, it may also go the wrong way.

I wonder if they even considered Renault's battery leasing approach being tested in Europe with the Zoe.

For those not familiar with it, you buy the car and lease the battery. Since the battery belongs to Renault, if it fails they replace it at no charge. The lease amount depends on the mileage you intend to drive. The lowest one is around 70 Euros per month. This is for a 22 kWh battery. So for a 60, the equivalent lease would be roughly 210 Euros per month.

The logic here is that the biggest uncertainty for resale value is the battery, not the car. The battery is also the costliest part of an EV. So why own something both expensive and uncertain?

Bart;
Yes, there's a confidence test here. Setting the floor on repurchase ('at least' xx%) gives more consumer control over the decision process. Elon referred to this in various spots.

@Brian,

Exactly, a smart move since it takes away uncertainties for the consumer.

@danielcc

I think think Renault has a better way of getting customers buying an electric vehicle than Tesla.

Applying this to Tesla would lower the initial purchase of the car probably substantially, since the cost of the batteries represent a large part of the cost of the vehicle.

Furthermore, the leasing of the batteries reduces the anxiety customers may have with the battery reliability, while generating a steady cash inflow for Tesla.

But it might be, that given the current state of the financial performance indicators they prefer to have the full amount at once rather than a more steady inflow over a longer period. This gives them the possibility to use the cash coming in for R&D on the Model X and the third generation.

I really hope they will give the third generation car the option to lease the battery, just as Renault does.

In the mean time I think it is smart for them to focus on the high end on the market for quite some time, maybe even longer than the proposed date for the third generation cars, in order to get as much cash as possible, both for investing in R&D for future cars as for investing in the Supercharger infrastructure.

Therefore I think it is smart for them to build a new roadster even before the third generation car, since high performance cars improve the brand image.

You guys do realize battery leasing was tried and it failed right? Better Place FTL

@Vawlkus

First of all, when an idea like battery leasing has been tried and failed, doesn't mean the idea on its own is bad. It may as well be a matter of execution or a matter of timing. For instance, Microsoft had a tablet way before Apple did, though Apple succeeded and Microsoft failed. Anecdotal proof isn't a very good proof.

Next, if I am correct Better Place provided battery swaps instead of charging them, which is different then the Renault leasing program.

The reason it failed was it caused more problems than it could solve.

BP did both battery swaps, to extend range and decrease charging times, as well as battery leasing to decrease the initial car cost. The major issue there was battery care: how to you insure the battery isn't being mistreated? Telemetrics, which people would opt out of?

While its true there is [i]cocievably[/i] a market for batteries after they are no longer powerful enough to be used in cars, but think it through; how long would it take to saturate that market that has yet to materialize? What do you do if it DOESN'T materialize? Battery leasing just introduces too many unknowables to be a good business choice long term.

@Vawlkus

You clearly have a different view on leasing than I do.

conceivably

Elon said there is currently no workable business model. The capital costs are far too high, and the numbers crunch the investors into submission.

Better place is not the Renault battery leasing model.

Better place is the battery swapping scheme, to avoid charging waits.

The problem with better place is that it doesn't scale well with different models or with time. Tesla already has two distinct battery technologies, for the Roadster and Model S. Different chemistry, change of output per cell, etc. This in less than five years.

So with Better Place, a country with just 10 electric car models and two chemistry generations, would require each station to stock 20 types of battery for swapping, so they would need to have at least two or three times that to always have charged units available. That times thousands of stations. A lot of capital just sitting there.

The Renault scheme for the Zoe does not involve swapping. It's a straight financial arrangement. By early accounts the Zoe looks like a hot seller. It's way early to claim that battery leasing is a bad idea.

As for end of life value, that problem needs to be solved regardless. Can you say Solar City? That's where those old Model S batteries are headed, for sure.

Currently there is no workable business model [for battery leasing]. And I agree. I believe this may be an option for GenIII cars after the initial reservations are running low. By then TM should have build up quite some capital so that they can actually produce and lease the batteries. Right now, the costs of the Model S batteries are way to high for TM to carry this cost over the duration of the lease. TM first needs to bank on the early-adopters (Roadster owners) and affluent enthusiasts that can afford the car no matter what. Renault can offer the option to lease the battery as it is a big established car company, making its profit through its ICE sales. They need this option to actually 'create' a market for their car.

So for the GenIII, which should be lower in cost anyway, and after initial reservations are low, getting a 'finance product' that allows the customer to buy the car, but lease the battery, might actually broaden the market, since that will again effectively lower the monthly payment.

As announced last Thursday, TM is now broadening the market with a 'financing product', although I do not see that being better than financing the car yourself, except for the Guaranteed Resale Value. Which as discussed is a minimum, and most hope resale value at that point in time will be higher anyway.
(I still need someone to explain me how this financing can actually produce more sales)

Personally I would be interested in a 'referral program' combining the finance product. The referral program has been discussed on the forum before [ http://www.google.com/search?ie=UTF-8&oe=UTF-8&sitesearch=www.teslamotor... ]. And as most suggest this is not a good option at the moment, but might be when reservations are starting to drop, i.e. when the free viral marketing of most of you driving around in the Model S has worn off. It would also provide a way for the less affluent to gather enough cash to afford the Model S. I do realize this option might never come, as releasing new Models (C, X) might boost sales naturally again.

Lastly, I have been in contact with TM about a real leasing (as business car leasing) in Europe. They are working with Athlon Car Lease as their EU partner. They are currently working out more details. As usual the Dutch get the first go: http://www.athloncarlease.com/athlon-nl/tesla

Titan:

The genesis of your thread is pricing anxiety. A top EV anxiety. But leasing done on a large scale would possibly defer 100 million to 1 billion of income per year. Still not a bad idea, but it needs to be implemented without creating balance sheet anxiety.

Start with 3 year old MS-60's used cars as the only MS cars available for lease. Tesla gets them for 40k. TM marks the used car up to 50k. With a battery lease and fuel savings, the resale price drops to 40k. Next let Tesla guarantee another residual price (whatever that would be), so you can get Tesla's new financing product. Now take your federal tax deduction of $7500. The finance price is now $32,500.

The car lease plus the battery lease together should max out around $400/mo for a 3yr old Model S 60 kwh car. This is real money costs & doesn't include any iffy deductions.

This way the program can start small and grow gradually to other models, and getting Tesla's out to more income groups. And if Tesla's cars last longer because of aluminum body, fewer moving parts, upgradable software etc, Tesla could even try a six year old MS-60 reconditioned car at a total car & battery lease of $200/mo for even more income groups.

By separating car and battery leases, this should relieve "end of battery life anxiety".

An 8-yr old 85 at 70% capacity is almost exactly equivalent to a new 60kWh MS. Most of the 'fast' degradation is done, and is slowing down. Since most sales are currently 85s, there will at some point be lots of good used full-function 60s.

Good point BrianH

Battery range degradation is another EV anxiety. And a used battery lease helps that and purchase price anxiety by lowering the upfront used car price by another 10k by collecting some of your gas savings through the monthly lease payments.

Used 85's might be a better choice , and then the lease could guarantee the battery to stay at 200 miles a charge or above.

And to get the federal tax credit for a used EV, the law would have to be changed. And the credit should carry forward 10 yrs or till used up. See reference:

http://www.edmunds.com/fuel-economy/the-ins-and-outs-of-electric-vehicle...

The tax credit for used would be unnecessary. It would simply raise the selling sticker price.


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