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Big Mystery Unveiled: You Can Now 'Lease' 2013 Tesla Model S

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2013 Tesla Model S

2013 Tesla Model S

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And now we know: Tesla's Big Mystery Story, teased via more than one tweet from CEO Elon Musk, is this: You will soon be able to "lease" a brand-new 2013 Tesla Model S.

That's a good thing (though not nearly as much fun as some of the ideas proposed under the Twitter hashtag #TeslaPredictions). But we digress.

Tesla Motors [NSDQ:TSLA] has partnered with two banks, Wells Fargo and US Bank, to create a "new kind of financing product" that combines, the company claims, "the surety and comfort" of actually owning a car with the traditional advantages of a lease.

On a conference call held today shortly after the announcement, CEO Elon Musk said the new product would both make the Tesla Model S available to a much broader audience and address nervousness about the residual value of a battery-electric car with a battery pack whose capacity declines over time.

Here's how it will work, according to the company's press release:

  • Buyers can put 10 percent of the purchase price down, and get financing from one of the two banks after their credit is approved.
  • That 10-percent down payment is covered (or more) by U.S. Federal income-tax credits, state purchase rebates or credits of $2,500 to $7,500, and zero sales tax in two states and the District of Columbia.
  • After a 3-year lease term, lessees may sell their Model S back to Tesla--at the residual value percentage of a Mercedes-Benz S Class, the company says, which is 43 percent of purchase price--but do not have to.
  • Tesla CEO Elon Musk is personally standing behind that guaranteed resale value, thereby giving customers "absolute peace of mind" about the value of their car, "with all of the assets at my disposal".

According to Musk, this is effectively a five-year loan (he later clarified this to "a 66-month term") with the right to return the car after three years.

If Tesla buys the car back from the customer, Musk said, the company will pay at least the guaranteed value. If the market value is higher, Tesla will pay that amount.

The company suggests that with the guaranteed return value, the various Federal, state, and local incentives, and the lower cost-per-mile of driving on grid electricity, it will cost less than $500 per month to drive a new Tesla Model S.

Musk suggested that net cost of ownership would be "$500 or $600" a month, combining the lease payment and cost of electricity--and pointed interested customers toward a cost calculator on the company's website for the true net out-of-pocket cost for a Model S.

That calculator starts with a lease cost of $1,199 per month before the various incentives are applied. It includes cost savings both for the Business Tax Benefit (assuming that buyers drive their Tesla on business) and a value for time saved by not having to stop for gasoline.

Musk noted that current depositors will not be able to take advantage of the new lease product, essentially because it would mess up the company's accounting.

If drivers who finance the car decide not to return it after three years, they continue to make payments for two more years to pay it off.

The press release contained one line that raised eyebrows among several journalists: "Like the Model S, this product was created from the ground up to provide maximum benefit to consumers, rather than simply duplicating other financing programs that tend to favor companies at the expense of the individual."


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Comments (10)
  1. Might be a plus to KEEP the orders coming. Perhaps the majority of the deep pocketed early adopters are already IN the order que?
     
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  2. Will be interesting to hear how Tesla will prioritize lease deliveries vs. existing reservations? One waiting list with a choice to lease, or buy vs. two lists. Either way, the number of people waiting just went up!
     
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  3. Quite innovative - I wonder if they'd take the 7500 upfront and still treat it as a sale with a put option after 3 years - that would be awesome.
     
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  4. Is it really a lease? According to the press release, the participating banks will provide "10% down financing for purchase of a Model S". Also, to qualify for the Federal $7500 Qualified Plug-in Electric Drive Motor Vehicle Credit, the Form 8936 instructions say you qualify only if "You are the owner of the vehicle. If the vehicle is leased, only the lessor and not the lessee, is entitled to the credit". I would say this is a "lease like" path to ownership with some creative financing and a guaranteed buy back.
     
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  5. @Steve: Not sure exactly which version of the article you read, as it changed many times as more details came out on the conference call.

    Current version puts "lease" in quotation marks and includes this sentence:
    "According to Musk, this is effectively a five-year loan (he later clarified this to "a 66-month term") with the right to return the car after three years."
     
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  6. John, I re-read your article and yesterday's press release. A key element of the program continues to be that the 10% down payment is covered (or more) by U.S. Federal income-tax credits. That simply is not available if you are leasing. That's why I say lease like in program execution but not really a lease.
     
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  7. I think those are just innovative ways to get more "future" sales of the model S.

    If Tesla continues the current production rate, they will be easily run out of the backlog by the end of the year. So, they need to keep the momentum going by reaching down to people who have problem shelling out $80k in cash or have doubts about owning a BEV for the long term.
     
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  8. So, a $78K basic S (with tech package and supercharge option) will be bought back for at least $33.5K, with a cost of ownership of ~ $45k. And of course, this figure does not factor in additional external savings from fuel, car pool lanes, etc. that you will stand to gain. This is not a bad price IMO. Tesla has made no claims that the Model S is for "regular folks." This will likely happen at some point, but for now they are wise to stick with the wealthier subset.
     
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  9. $1200/month.

    Thanks to John Voelcker making the fuzzy math clearer. When Elon talks about $500/month running costs, I got confused with the monthly payments being $500/month, when actually it is more like 2.5× that amount.

    I really should have known better given the MSRP of the vehicle. Voelcker's reporting brought me back to reality.
     
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  10. I live in Arizona, when are the rest of the states allowed to lease?

    Ready to order, let me know when.
     
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