Tesla Motors, banks arrange buyback deal for Model S electric car


Tesla Motors has worked out a deal with several banks to sell its pricey electric sports sedan with a guaranteed buyback after 36 months.

The transaction is meant to be competitive with leasing, a key component of luxury auto sales. In a lease, people essentially rent fancy nameplates such as Mercedes-Benz and Jaguar -- instead of putting up a lot of cash or taking a large loan to finance the purchase.

Tesla is now getting into that game, with a transaction that works like a lease but actually is a resale agreement.


The automaker expects the move will spur demand for the Model S and encourage people to try out the car without taking on the risk that comes with buying a product with new technology from a start-up auto company.

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“It combines the best of ownership and leasing,” Tesla Chief Executive Elon Musk said. “It makes (the car) more affordable to a much broader audience.”

Musk said he wanted to eliminate the uncertainty of buying an electric car.

“It will give customers complete peace of mind; you don’t have to worry about buying the car,” he said.

The automaker has partnered with U.S. Bank and Wells Fargo; both lenders agreed to offer a financing deal with a 10% down payment for a Model S. Typically the down payment would be covered by the $7,500 federal tax credit for electric vehicles and could be augmented by other incentives, such as California’s $2,500 rebate.

After 36 months, the buyer will have the right if they so choose to sell the car back to Tesla for the same residual value percentage, or resale value, as the rival Mercedes S Class sedan. The Mercedes sells for nearly $100,000 and loses 53% of its value after 36 months, according to Kelley Blue Book.

“Leasing is a key component for luxury automakers to attract more buyers to the brand,” said Alec Gutierrez, an analyst at Kelley Blue Book. “More than 50% of new car sales for luxury automakers are done through leases and this new program will help Tesla to attract buyers who were reluctant to try this new technology.”

Musk said he wants to make the car more affordable and one day hopes to produce a less expensive “mass market” vehicle.

“I wish we could have done a mass market affordable car as our first car,” he said. “It simply wasn’t possible because it’s going to take us at least three major iterations of the technology to get there.”

This week, Tesla told investors that it is poised to turn a profit for the first time, based on stronger-than-expected sales of its premium electric cars. The automaker sold about 4,750 of its Model S sedans in the first quarter, about 250 more than it projected in February.

The first-quarter sales were nearly twice the number of cars Tesla sold in the fourth quarter of last year, the automaker said.

Tesla started delivering Model S, an all electric sports sedan, in June. It sold about 2,650 cars in all of last year, 2,400 of them in the fourth quarter, once it ramped up production.

The Model S prices start around $60,000 and can top $100,000 depending on how the vehicle is equipped and the size of its battery pack. A larger battery gives the car a bigger range before it needs to recharge.

Although Tesla is headed for its first quarterly profit, it still faces many hurdles.

One issue is whether it will achieve sustained sales after the initial surge of Tesla enthusiasts purchase their cars over the next year or so, said Thilo Koslowski, an analyst at Gartner Inc.

The market for electric vehicles that cost two to four times a conventional car just isn’t that big.

Tesla also will need to expand sales to Europe, but will have trouble marketing its cars in other regions of the globe that aren’t developing electric vehicle charging infrastructures.

The Palo Alto automaker also is facing resistance in the U.S. from state auto dealer associations that are trying to block Tesla’s sales model of owning and operating its own stores and service centers instead of franchising dealerships.

Later this week, the Texas legislature is expected to hold a hearing on legislation supported by the Texas Auto Dealers Assn. that would force Tesla to use a dealer network to sell cars.


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