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Something very exciting coming...

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

Read it online: http://twitter.com/elonmusk/status/316260319360061440

Care to speculate?

(Thanks Erik)

Are we into voodoo economics again? This is marketing jargon. You will not buy this car for $500 per month out of pocket...I think it is closer to $1200. Money is practically free right now and you can get loans at 1.5% for 72-84 months. This was not big news, especially considering that 43% residual after 3 years is/was Kia or chrysler territory. I thought the tesla roadster was holding at 65% residual and I would hope the Model S would be the same. Hopefully, Elon will talk supercharger infrastructure with is next announcement...this is what matters to potential buyers, not funky lease/buy deals.

Don't underestimate this. There's a lot of fear out there from potential owners that the car will be worthless after a few years. Elon has put a floor under the value. One by one he is going after the 'reasons not to buy'.
Reason 1: I can't go long distances. Answer: Superchargers, free for life.
Reason 2: The car will be worthless in a few years, maybe. Answer: battery warranty, and floor under the value based on TM buy back at S Class value.
Reason 3-5...?

Agreed. The floor is important to me because I can stifle my son-in-law, who thinks I'm crazy.

I love the thinking here. The risk to value of current S's here is that Tesla makes it to 5 years to produce 100,000 cars, not that they fold after three years. The play is to buy the car and sell the three year 43% floor for the fat premium offered if you could, not buy the floor for a cost.

Then again I expect they will be here so I can get my X so all of this is a moot point...

The floor is a minimum, and matches the residual on the 66-mo loan. TM will pay market if it's higher.

@Brian - Do you really think TM will pay market if it's higher? I would think TM will pay the floor, and if you can sell it in the market for more, you are free to do so.

@DouglasR

I am sure you are right and BrianH wrong.
After all, the incentive for such a deal is to remove some of the uncertainty some buyers feel regarding Tesla value as secondhand car. And why would TEsla go higher then floor? That would mean increase risk without substantial befits. Cars in a shop is always money tied down - no matter how you calculate. And in the end you don't know the bottom line until all cars leave shop. If some or most cars are bought even higher priced then agreement the risks goes up for Elon.

@ nickjhowe - agreed; it's a bit like the iPhone 3G which "sold for $200" instead of $500, with carrier subsidy; if the customer is rational, he understands that over 2 years he pays more than the difference, but the proposition is irresistible nonetheless (it's a bit like failing the marshmallow test http://en.wikipedia.org/wiki/Stanford_marshmallow_experiment)

@ DouglasR, @ torst1 - there was an analyst who asked precisely that during the call yesterday; Brian is right, Tesla will pay more if the market price is higher

Buying and selling used cars is a big profit center for dealers. Since Tesla has no dealers, why wouldn't they get into the used car marked for their own cars - especially when they can clean them up and sell them as "Certified pre-owned" If the wholesale price for a used tesla MS 3 years from now is higher than the floor, then it makes perfect sense for Tesla to buy it for a higher price because the retail price will be even higher so they make the mark-up. Tesla is in the best position for someone to buy a used Tesla from - they can add on extended warrenty and service packages, and other add-ons.

It's just all good business, and Elon is a great business man!

Well then I stand corrected - but I can not see why they would do that.
If market is higher you are free to sell to anyone you like. Problem solved and no need to add more financial risks. If market is lower the buy back stands and Tesla will pay floor.

For me this seems kind of like trade with options and futures and those who trades do not like to add risk without possible financial gain. After all buying used car will tie up money or lower the credit rate. So as I said from where I stand that makes no sense at all. After all Tesla should focus on their long term goal - to be a producer of EV. Dealing with used cars is not where they have expertise and manpower.

I am not saying used Tesla's don't hold value - I am just saying Tesla stick to your guns. This is for me like a contract with stock options - here you don't trade underlying assets in the form of stocks but in the form of a car. You have the right but not the obligation to sell - just as with stock options. So why increase the risk by making more people use this option? The money was already made the second the lease was approved and signed.

You underestimate how big this used car business is and what it does for a brand to control the used car buying experience. If three years from now someone can buy a use MS that cost $100,000 new for $45,000 direct from Tesla with 1 year left on the warrenty, Tesla can easily talk them into an extended warrenty, extended service plan, on and on. Also, they can control the experience and make happy customers at a much lower price than we all paid. All good for the brand and building the EV customer base. Look how unclear we all are on even the simplest things regarding this car - imagine buying a tesla from another consumer - how would they be able to answer your questions on service and warrenty and rangers etc etc. and would you trust them?? But if it came from Tesla - you would drink the kool-aid like the rest of us!

@mwojcie

I do see the point in what you are saying. However paying market price seems like an added risk combined with the factor of tying up capital in used cars for me it still seems like the risk outweigh the benefits. With such an approach the are sure that many more will execute the sales option.

Even though in long term view the added income from sale of used cars will add a positive revenue stream to the bottom line one main problem for new companies is always positive cashflow. And what more often then you might like to think takes down companies are not the bottom line or numbers of orders in the books. Too often companies struggle to meet short term financing and bankruptcy may occur. This is how serious cash flow is.

If cash reserve are at a premium for a company such a strategy would be a well planned strategic choice - here it might be the opposite. Because I fear this will put unneeded strain of Tesla's financial muscles and credit score.

I like the confidence projected with the buyback guarantee, but Elon and Tesla suffered a major loss of street cred by touting this $500/month nonsense. A car with the big battery and the options you want is going to mean a payment of at least $1200/month. Elon can use whatever math he wants to to whittle the cost down to $500/month effective cost, but the check you write every month will be at least$1,200.

And to get the guaranteed buyback option, you need to go with their financing, which is double what you can get elsewhere (3% vs. 1.5%).

Still an awesome car, but the spin they pup on the new financing plan makes them look like fast-talking timeshare salespeople from the 1980s.

@torst1 - you make a good point about straining cash flow. I agree that could be a challenge and a big risk, but I'm guessing the Elon is betting that 3 years from now his cash flow will be different.

Also, a stablized used car market will stablize his whole company and give him better borrowing capabilities. So, we shall see how all this plays out. He's taking the long view to solidify the present. Definately a risk - but that is his nature.

I agree that this was not the sexy news we hoped for. But these kind of dull financial details are important.

Switching to an electric car is still a scary thing for many people. What if I don't like it? What if I can't charge? What if the range is not what I hoped for? What if I miss the smell of oil? What if my wife/husband keeps on forgetting to plug it in? What if it keeps on breaking down? What if electricity skyrockets to $0.30 per kWh?

Giving owners some peace of mind is very important. They can now try out the Model S for 3 years knowing exactly how much it is going to cost. Still a good deal of money, but certainty is worth a lot.

@mwojcie

Well if I was a shareholder news like this would certainly make me reconsider the stock. Why would I invest in a company that takes risks that might even make the company worthless?

Betting on future cash flow is a game most suited for guys on wall street.
And a new company with little history is not the place to make an aducated bet about cash flow - remember we are talking 3 years down the line. Neither Elon, me or you know what the cash flow will be.

What we have seen over the past 15-20 years or so is that the car industry is vulnerable to the market as every else business. Brand names have gone under, entire factories has been closed down and jobs have vanished. And many of those companies had decades upon decades of financial history, old orderbooks and even a well oiled international dealership. Still they went belly up. To explain that with fewest words - negative cash flow and accumulating debt.

And here we see a brilliant company with a unique product - an EV the world have never seen before. And what do the mighty leader and founder do? He brakes out the roulette and start spinning the wheel. Why Elon? Why?

By the cars at floor and problem solved. If cash flow is great in 3-5 years then run ads, send out e-mails or put a call center on the job contacting those customers and tell them you will pay market. But don't make promises today that might in a worst case scenario end up putting the future of the company in jeopardy.

@torst1 :
This is where Elon is putting money where his mouth is!
He has effectively said that he will PERSONALLY guarantee the buy-back of the cars after 3 years at 43%. The Tesla press release made it clear that Elon is assuming this risk personally, not Tesla Motors. I know it seems like a subtle point, since he is the CEO, but the downside risk is not on Tesla, its on Elon. This action is more than an assumption of risk, too, it is a declaration of confidence in the Tesla product, backed up by a personal guarantee that the car will have a predictable value after 3 years. My bet is that the market value will hold and that the floor of 43% will rarely come into play, since buyers will go for their best option which will be the higher value. Furthermore, this move gives support and confidence to the competition in the financial sector. It will make it easier for customers to find other, even more competitive leasing and financing options. It will also provide a baseline for business and institutional customers who would be looking at fleet arrangements and cost curves over 3-5 years, allowing these customers to proceed with confidence because Elon is personally backing them up! This move will allow Tesla cycle cars through such transactions with more facility and predictability, and at the same time create a market for "certified pre-owned Model S" electric cars, which would then make them affordable to those who aren't able to pay full retail value of a new car, this expanding the "reach" of the Model S into the mass market. For Model S owners, especially for first adopters, this is actually great news, as it lessens our risk over 3 to 5 years.
Risky move for Elon, yes, but brilliant, and confident! And NOT a big risk for Tesla Motors.

@imherkimer

OK if that statement was made by Elon as a private citizen it makes more sense. Cause then there will be no added strain on ie Teslas credit score.

Lets see what the market say about this. I guess it will be reflected both on the numbers of contracts using this financial model and the fluctuations in TSLA stock. In the end the market is the final judge.

If the market goes higher, it can only be because of heightened demand, which means easy rollover for TM. The financial risk actually decreases.

You have to connect the dots; in the previous s/h calls, Elon alluded to moving pre-owned vehicles as another major potential cash flow source. IAC, I suspect the large majority of returned cars will be by those looking for a later and/or larger MS model. So it does not represent a net expense.

I listened to the Bloomberg interview, and Elon said that the repurchase will be offered by the company and guaranteed by him personally. The personal guarantee comes into play only if TM goes under.

I am assuming that this repurchase offer applies only to those who use the new TM financing product. Is that correct? Obviously, the same offer could (and probably would) be extended to any true leasing product that TM comes up with, but does anyone think that TM is extending a repurchase offer to all owners, including those who paid cash?

@vgrinshpun

You have been on point since the start of this thread! I am interested to hear your thoughts/speculation on the coming announcements. Thanks for your valuable input!

Those using the new offer only. It's intended to reassure prospective buyers. It will de facto set a floor on the resale market, though.


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