Praise for the 2013 Tesla Model S has been nearly universal, with the biggest sticking point being that the car is just too expensive for the average consumer. Compounding the problem, Tesla Motors announced this week that it will no longer build the base $52,400 version with its 40 kWh battery due to a lack of demand. The next-most-affordable model now starts $10,000 higher.
What’s more, Tesla hasn’t had its own financing operation, which meant that you had to go through your own bank or pay cash for a Model S, most of which have been nearing $100,000 thus far.
If you’re looking at getting yourself a 2013 Tesla Model S and have considered it unattainable, you may have a change of opinion now, as Tesla has announced that it’s partnering with US Bank and Wells Fargo to create a specialized financing arm for Tesla customers. On approved credit, customers will now be able to plop a down payment of 10 percent on a Model S and make monthly payments that the automaker says should bring the true cost of the car down to around $500 per month, including charging the car up. With gas hovering around $4 per gallon these days, that could make all the difference. In reality, customers will still be paying between $1,000 and $1,400 per month for a Model S, and they’ll make up the difference in tax breaks and not having to pay for gas, according to company CEO Elon Musk.
“There’s got to be some better way than the traditional approach,” said Musk in a press call yesterday. “You can buy a Model S for no money down, net of the tax credit, and around $500 a month.”
In addition, Tesla says that after 36 months, owners will have the right to sell their cars back to Tesla at a residual value matching the Mercedes-Benz S-Class. Tesla will guarantee the value, which is a good thing for owners worried about the residuals what basically amounts to a second-generation experimental car from a start-up automaker. But it’s also likely that pent-up demand will force values of the Model S higher than the agreed-up rate under the financing conditions, artificially suppressing the trade-in prices of the cars. Tesla says the S-Class retains 43 percent of its value after the first three years, but looking at the listings of Tesla Roadsters online, it looks like most have kept more than 80 percent of their values after two, three, and four years. Tesla is buoying the Model S’s value on a car whose depreciation has been recorded for the last 50 years and is well known for sinking like the Titanic ’til it reaches collector-car status. It’s playing safe by guaranteeing a new-tech car to possibly unsure adopters.
“You’re guaranteed to be on par with one of the best cars in the world,” Musk said. “The goal is to give customers the best peace of mind.” Musk said that he is “personally guaranteeing” the cars don’t drop value any further, offering to cover the difference with his own assets.
“You can give it back, but you don’t have the obligation to give it back. It’s like a lease with the best possible parts of ownership,” he said.
To qualify, you have to have exceptional credit–Musk would not comment on an exact number–and pay 10 percent of the car’s price upfront on a financing deal. Musk says electricity will cost just 10 percent of what gas will, saving customers money in real costs if you’re trading in a 17-mpg BMW M5 or the like. “By having a monthly payment, you really do see that difference,” Musk says.
The banks will extend a financing plan at a 2.95-percent interest rate for 66 months. If you want to trade in the car after three years on a new Model S, you can take it back at the depreciation rate of the S-Class. Or you can hold onto it and buy it outright for the remainder of the term, which can be paid off early at any point. Musk said that purchases that have already been made or reservations already in the pipeline will not be able to apply for this financing deal, as their sales have already been recorded.
Says Musk of the new financing plan, “I think it’s the right thing to do, and I think that demand will respond appropriately.” Musk says that there are no plans for financing operations in Canada or overseas yet.
There are more than 13,000 reservations for the Model S, and Tesla has disclosed that just under 5,000 have been delivered so far. All of them have been to affluent buyers who have been able to secure their own financing or buy cars outright.
Looking at BMW Financial’s deal on a $65,000 550i xDrive by comparison, a lessee or financier can pay 10 percent down and have a payment of $691 with a lease or save about $6,000 over the course of a full financing period versus the Model S, not including fuel and maintenance. A bank usually figures special lease rates to keep payments low, which Tesla doesn’t have.
Tesla says the true costs will amount to less than what a traditional car costs, but we’re not sure we’re seeing a real benefit to this plan that will provide owners with savings unless they’re getting the most expensive models and trying to speculate the costs of fuel over the course of a lengthy finance deal. The more you drive the car, the lower the “payment” will be, eventually reaching the $500 mark with some fancy footwork on your taxes. Musk says to look out for more announcements in the coming weeks about other happenings at Tesla.
To see how Tesla calculates it payment plan, visit its site here.