New Tesla loan program designed to assure skeptics

The Tesla Model S, which won the 2013 World Green Car of the Year award at the New York Auto Show last week, costs about $70,000. Tesla unveiled a fin...
The Tesla Model S, which won the 2013 World Green Car of the Year award at the New York Auto Show last week, costs about $70,000. Tesla unveiled a financing program to cut costs.John Moore / Getty Images

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By Paul A. Eisenstein

Hoping to improve the affordability of the company’s new battery-electric vehicle while also addressing skeptics, Tesla has announced a “revolutionary” new financing program that is designed to cut costs while also giving customers an out if they’re not happy with their new Model S sedans.

Working with Bank of America, the program combines a low-interest rate, minimal down-payment – and the ability to return a Model S after three years and receive a guaranteed residual – essentially a trade-in price – pegged to the value of a Mercedes-Benz S-Class. But unlike a traditional car lease, Tesla buyers who like their vehicles will simply be able to keep them and pay off the rest of their loans.

The goal of the program was to “combine the best of ownership and leasing,” said Tesla founder and CEO Elon Musk during a conference call with reporters. “There has to be a better way,” he stressed, noting that he expects “a majority” of future Model S buyers will participate in the unusual loan program.

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What may put the news into the “revolutionary” category was Musk’s declaration that “No matter what happens to Tesla … I will stand by the residual value if Tesla cannot with all the assets at my disposal.” Forbes magazine recently pegged the entrepreneur’s personal wealth at $11 billion – although Musk suggested that figure was “a little high.”

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The finance program announcement came barely a day after Musk signaled that Tesla exceeded its sales goals during the first quarter of 2013, ending a string of losses with what is expected to be the California start-up’s first profit when it formally closes the books on the January – March quarter.

Musk also hinted that Tesla plans “a new announcement every week or two from here on out.”

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The new finance program, which carries a 2.95-percent interest rate from Wells Fargo, will allow Model S buyers to apply the various federal, state and local tax credits they might qualify for. That could bring the monthly payment on a mid-range version of the Model S, around $70,000 with typical options, Musk estimated, to between $500 and $600 a month.

The cost of buying a battery vehicle, especially one with the size of the battery pack in a typical Tesla vehicle, is generally considered one of the biggest concerns among potential buyers and clearly an issue the program is aiming to resolve. Musk stressed that beyond the basic monthly loan, buyers should consider the lower cost of energy and maintenance when compared to a conventional gasoline-powered vehicle.

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The Model S is a pricey vehicle, with a well-equipped, top-line model nudging over the $100,000 mark. In fact, buyers have almost exclusively been opting for the mid- and higher-range versions and on Monday, Tesla said it would stop production of a base model that was accounting for just 4 percent of initial demand.

Even with the new program, Musk admitted that, “I’d like to broaden the affordability of our products,” something he has said since founding the company. He almost apologized for starting out with a product like the Model S – but that is something most makers have had to do when entering the alternative propulsion world to help absorb the hefty cost of first-generation technology.

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Longer-term, Musk suggested, “It will take at least three iterations,” or generations of products to bring costs down on battery power to something closer to conventional gas-powered vehicles.