Your real monthly payment, before all those “savings”? No less than $1,097. That’s the payment on the cheapest Model S available, according to Tesla.
The savings on gas are real, the others less so for most, but none will reduce the size of the check you’ll have to write to the bank every month. If you were hoping for a cheap way to buy a Model S, I think you’ll have to keep hoping.
But why can’t Tesla just offer regular leases?
Because nobody (yet) knows what a Model S is going to be worth in three years.
The banks and financing companies that offer new-car leasing programs have a pretty good idea of what the car you’re leasing is going to be worth when the lease is up. That value, called the car’s residual value, is the starting point for calculating the monthly payment that will be required under the terms of the lease.
Those finance companies have access to data on millions of used-car sales, which gets crunched a lot of different ways. With most cars, even brand-new models from established automakers like Ford Motor Company (NYSE:F) or Toyota Motor Corporation (NYSE:TM), using all of that data to calculate the likely average value of a used example is a straightforward exercise.
But with Tesla Motors Inc (NASDAQ:TSLA), all that data is pretty much worthless, for a bunch of reasons. First and foremost, few if any Model S’s have been sold on the used-car market, so there aren’t many Tesla-specific transactions to look at. And it’s hard to predict how the Model S will be valued by the market in time, because it’s unclear how the car will age.
What’s more, the car isn’t just a new design, it’s from a new automaker. And it’s powered by a technology that isn’t exactly unheard-of, but hasn’t been implemented this way before on any kind of mass-market scale. How reliable will the Model S be in the long term, and how will that reliability affect demand for used Teslas? We don’t know yet.
What’s more, Tesla the company hasn’t (yet) reported a profit. Will the company even be around in three years? (To be clear, I think it will be, but can you see where a bank might not be willing to bet its own money on that?) If Tesla isn’t around to provide parts and service and upgrades and an ongoing market, its cars might not be worth much except as collectors’ curiosities.
It’s not a bad program, but “$500 a month” is a stretch
Those are probably some of the considerations that drove Musk to create this alternative financing program with U.S. Bancorp (NYSE:USB) and Wells Fargo & Co (NYSE:WFC). By pegging the residual value of a used Model S to that of the top of the line Mercedes, Tesla is essentially establishing a floor for the future market – and putting their own cash behind the idea that a Model S will hold its value for a while.
That’s a savvy move that will help the company establish a real leasing program in the not too distant future. And that will be a very good thing for Tesla’s sales when it happens.
But meanwhile, the idea that you can drive a Model S for $500 a month is still just a nice idea for most folks, no matter what Musk says.
The article Tesla’s Numbers Don’t Add Up originally appeared on Fool.com.
Fool contributor John Rosevear owns shares of Ford. Follow him on Twitter at @jrosevear. The Motley Fool recommends BMW, Ford, Tesla Motors, and Wells Fargo. The Motley Fool owns shares of Ford, Tesla Motors, and Wells Fargo.
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