Tesla announces new way to finance its electric cars, a hybrid between leasing and owning

© Tesla

Introducing 'Tesla Financing(TM)'

Tesla Motors has never been a company that did things like everybody else, from its electric cars to its stores to its charging stations. Today, they're innovating on financing:

How does it work?

  • US Bank and Wells Fargo have agreed to provide 10% down financing for purchase of a Model S (on approved credit).
  • The 10% down payment is covered or more than covered by US Federal and state tax credits ranging from $7,500 to $15,000. New Jersey, Washington and DC also have no sales tax for electric vehicles. These advantages are not available when leasing.
  • When considering the savings from using electricity instead of gasoline, depreciation benefits and other factors, the true net out of pocket cost to own a mid-range Model S drops to less than $500 per month.
  • After 36 months, you have the right, but not the obligation to sell your Model S to Tesla for the same residual value percentage as the iconic Mercedes S Class, one of the finest premium sedans in the world, made by Daimler (also a Tesla partner and investor).
  • Not only is Tesla guaranteeing that resale value, but Tesla CEO Elon Musk is personally standing behind that guarantee to give customers absolute peace of mind about the value of the asset they are purchasing.

Bottom line

So basically, you get the benefits of buying (you can keep the car as long as you want), but like with leasing, you have the option of returning the car after 36 months for the equivalent of not less than the percentage of residual value of a Mercedes S Class (which should reassure those who don't think Teslas will age well and retain value). As Tesla mentioned, if you lease you don't get access to the financial incentives provided by various government levels for buying plug-in vehicles, something that this hybrid financing option does get access to. This type of financing also allows you to sell the car at any point, unlike with a lease. They've tried hard to make it the best of both worlds.

This new type of financing will only be available in the U.S. at first, though Mr. Musk mentioned that they're working on ways of making something similar available in Canada, Asia, and Europe. Canada should be next, "within months", with Scotia Bank as partner, said Musk.

Update: Tesla has released this video of Musk explaining the broad strokes of the new financing plan:

© Tesla Motors

The company has a new calculator page where potential buyers can see what their "true cost of ownership" would be under all kinds of scenarios. You change all kinds of variables, such as state-specific tax credits, how many miles you drive, what your gasoline and electricity costs would be, and you even have the option of giving a monetary value to the time you would save by having access to the HOV lane and not having to stop at gas station.

My Impression

I feel like this financial innovation will turn out to be extremely important for Tesla, even if a lot of people won't realize it at first. It's a bit technical (it's basically an ordinary car loan with an embedded put option guaranteed by Tesla and Elon Musk personally), so it won't get people excited like a new electric car design or a fancy charging station, but it still matters. SolarCity has shown in the solar power area that how financing is structured can make a lot of difference, and while there's a big difference between electric cars and solar systems, the impact on the adoption rate of the technology could potentially be similar.

Mercedes has taken decades to build a reputation as a brand that holds value relatively well in the used car market, and in one day, Tesla has latched on to that and told everybody "we hold our value just as much". Brilliant move for a small startup, in my opinion.

And no doubt if this new financing method is successful, other car-makers will copy it -- it won't be the first time that others follow where Tesla leads. This has always helped the company punch above its weight in impact on the industry.

Flickr/CC BY 3.0

Don't tease, Elon

Elon Musk also teased the journalists on the conference call by saying that the company would make announcements about more products and services, and new features that are right under everybody's nose in the Model S, but not today. These will be announced in coming weeks, so stay tuned.

Via Tesla Motors

See also: Tesla News: Model S exceeds sales target, Q1 will be profitable, 40kWh model killed, bonus supercharging

Tags: Electric Cars | Electric Vehicles

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