Tesla Tweaks Model S Financing To Make It More Affordable

By · May 06, 2013

White Tesla Model S in front of big house

An outright purchase of the Tesla Model S is only accessible to the top 1 percent of households, according to billionaire CEO Elon Musk. The new financing program is intended to change that.

On Friday, Elon Musk, chief executive of Tesla Motors, announced a revision of the Tesla Model S financing program—the one that was unveiled only a month ago. Tesla had presented the program as a big deal that makes the Model S more affordable, but it was met with criticism. “We decided we were wrong and other people were right and we decided to fix it,” said Musk. The changes include adjustments to the residual value guarantee, and lengthening the financing term to lower the payment.

Under the plan, new Model S buyers would have the right to sell the car back to Tesla after three years at a guaranteed price. (In this way, the financing plan to purchase the vehicle takes some of the qualities of a lease.) The financing also includes amortization of tax credits and other accounting measures to reduce the monthly payment.

Tesla's goal is to broaden the range of potential customers who can afford to a Model S. In a gesture that could be construed as paternalistic, Musk said that he would use his considerable personal wealth to back the resale value. Even if the Tesla Motors corporation were to crash and burn, Musk said, he would be personally on the hook for the guaranteed resale value.

If At First You Don't Succeed...

Musk promised to continue revising the financing program into it achieved the goal of opening the market to new buyers. Since it went into effect, about 20 percent of Model S buyers went with the financing. Over the long term, Musk hopes that the take-rate will increase to as much as 70 percent.

With the latest revisions to the program, the guaranteed resale value increased from 43 percent to 50 percent. At 43 percent, it matched the guarantee offered by Mercedes Benz on certain cars, and now it exceeds the guarantee for any premium sedan built in volume. “If we believe we're making the best car, we believe it should have the best resale value,” said Musk. The increased resale value guarantee retroactively applies to all those who purchased using the financing program.

Tesla's financing partners also agreed to provide longer term loans—from 63 months to 72 months—considerably reducing the monthly payment.

As for the calculator on the Tesla website—which perhaps received the most criticism since the program was announced—its default setting have been adjusted. The default for the average price of gasoline over the next three years is now set at $4.90, while the business tax benefit is unchecked. Calculator users can customize these values, but the defaults are now set based on more broadly acceptable assumptions.

“As a cash purchase, cars are kind of expensive. As a finance purchase, I think it becomes increasingly affordable,” said Musk. In an awkward comment that borrowed terminology from the Occupy Movement, and apparently meant to make a Tesla vehicle seem less elitist, Musk's brazen style once again backfired. “With a cash purchase, [the Model S] is accessible to the top 1 percent of households in America. With the right financing approach, it becomes accessible to the top 10 percent potentially.”

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