Tesla just announced a new financing plan for its Model S electric car, but the news brought plenty of questions with it. Co-founder and CEO Elon Musk held a Q&A session for press and investors to discuss the new offer.
The new lease plan is being marketed as offering a Model S for between $500-600 a month, but it’s important to remember that it’s a net out of pocket calculation that includes tax credits and estimated savings for gas and maintenance. The other notable aspect of the leasing deal is that both Tesla and Musk himself are guaranteeing the trade-in and buyback price will be at least that of a Mercedes S class at the end of the three-year lease.
Musk is a billionaire, so his word should carry some weight. Although, he did note in court documents in 2010 that he had run out of cash and was borrowing money from friends. Forbes estimated Musk’s net worth at $2.7 billion as of last month.
Musk noted on the call that this actually isn’t a traditional lease, since the deal involves owners first buying the car and then having the right to sell it back to Tesla after three years. Normally, a lease would work the opposite way, having the customer make payments and then extending an offer to buy at the end of the lease.
Tesla’s calculations assume that customers will get between $7,500 and $15,000 in government tax credits that will offset the 10% down payment. In California, for example, buyers should get a $2,500 immediate state credit and a $7,500 federal credit. Monthly payments will be over $1,000 a month, depending on add-ons and the specific terms of the loans, which will be issued by Wells Fargo and US Bank. Those interested in the deal can play with Tesla’s calculator to get more details.
Musk noted on his call that Tesla is planning to pick up the pace on its announcements. He said that the company will announce changes like supercharger expansions and service updates every week or two in the future.
The new financing plan is intended to make Tesla more affordable to everyday buyers. It’s also meant to reassure purchasers who might be worried about the long-term value of a Model S.
Tesla is optimistic that the residual value of leased Model S vehicles will actually be better than that of a Mercedes S class, so it’s willing to pay market value for buybacks if it does end up being higher. Musk cites the Automotive Leasing Guide as listing the residual value of a Mercedes S 550 at 43% after 3 years.
“We’re trying to construct the most consumer-friendly finance product in existence. That’s our goal here,” he said of the plan.
Musk wasn’t able to answer what kind of credit score will be needed to be approved for the lease, but he did say that “quite a good credit” rating will be needed to get the best terms. The interest rate for the 66-month loan is expected to be 2.95%.
In the company’s own quiet trial program, Tesla found that the “super majority” of customers were approved for the plan. As such, it expects the lease plan to be quite popular among Model S buyers.
“We’re expecting a pretty high percentage [will opt for the lease], probably a majority of our customers,” Musk said on the call.
While Tesla already has plenty of demand for the Model S without the leasing plan, Musk said that his goal was to “broaden the affordability” of the car. He added that his original hope for the company was to make a mass market care as Tesla’s first vehicle, but the pricing wasn’t possible.
Tesla does plan to make a low-cost car, but Musk said on Tuesday it’s at least three iterations away. To put it another way, he said on Twitter last week that such a vehicle is three to four years away and would be priced at $30,000 in 2013 prices with a 200+-mile range.
For now, the company plans to sell as many cars as it can “efficiently make”. It sold 4,750 Model S vehicles in the first quarter of 2013, achieving full profitability.
Right now the plan is US only, but Tesla says its next priority is Canada. Musk noted that the company is working with Scotia Bank to bring the deal north “hopefully in a matter of a few months”.
So there you have it, everything Tesla and Musk are saying about the Model S leasing plan for now. We fully expect this to be huge.
Image credit: Tesla