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Big Announcement=Leasing

Looks like leasing is here!

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!

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.

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...

+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!

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.

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").

@ 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.

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.

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

@eAdopter +1

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!

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.

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.

"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.

@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.

+1 Mark K

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

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

The fumble is the way they communicated it.

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.

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.

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?"

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.

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.

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.

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.

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%

huh?

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%

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

+1 @Brian H


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