Why Can’t You Lease a Tesla?

The Fool's own senior auto analyst, John Rosevear, sits down with Richard Engdahl for an in-depth look at Tesla  (NASDAQ: TSLA  )  and the electric vehicle market, as well as Chrysler's unique situation with Fiat  (NASDAQOTH: FIATY  ) .

Leasing is a huge part of the luxury vehicle market, and one that Tesla hasn't been able to participate in yet, because its product is so new that no one is quite sure of its depreciation rate. The electric vehicle company has created a work-around in the meantime.

A full transcript follows the video.

Richard Engdahl: You don't see Tesla owners on a two-year upgrade cycle, just like the iPhone?

John Rosevear: It's hard to be on a two-year upgrade cycle with a $70-100,000 product where they don't have the lease program in place yet, and there are some arcane reasons why they don't have a lease program.

That's an interesting issue with Tesla, actually. Some huge percentage of luxury cars are leased. People don't pay $100 grand for a Mercedes S-Class. They pay $700-800 a month to lease it, and then they go get a new one in three years.

A lot of luxury cars are sold this way. I think over half of Mercedes, certainly over $50,000, some huge percentage of them in the U.S. are leased.

Tesla, because it is a new company, because the cars haven't been around enough to establish what they're going to be worth in the resale market -- the residual values -- which are key to calculating a leasing formula.

What's the car going to be worth at the end of the lease? Well, we don't know what a Model S is going to be worth in three years, when it's got 40,000 miles on it. We don't know that yet because the market hasn't come in.

Musk and Tesla have tried to set that up by saying, "We will peg our depreciation to the Mercedes S-Class," the top of the line Mercedes. "However fast that depreciates will be however fast our car depreciates, and we'll guarantee that because we'll buy it back from you after three years, at that price if you want."

They've come up with a funky financing package that is sort of like a lease deal. Clearly, they want to work toward having a real leasing program in the U.S. as soon as they can. That will help them with established luxury car customers quite a bit.

"What do you mean I can't lease it? Why don't you guys have that?" That's surely an objection that they hear in their sales process quite a bit. "I can just go to my BMW dealer and get a 7-Series today for $899 a month. Why can't I do this with you guys?"

That will come too. This is, again, part of building out the business.

Engdahl: Did I hear that Tesla has started to move into rental car markets, or is that just somebody who was saying they should?

Rosevear: I did hear that one of the rental car companies had bought a batch of Model S's. I don't know how many; I suspect it's a small number of cars. It might just be at their Palo Alto office, or whatever, to start renting them as a top of the line, super premium upgrade.

You know, you can get the little car, you can get the medium car, you can get the great big Chevy Impala, or if you want to spend big you can get the Tesla for the day.

Engdahl: So that's not a real business yet? That's just a novelty.

Rosevear: It's not a real business yet. I mean, I don't know whether they've sold 5 cars that way or 40 cars that way, but it's not a real business yet.


Read/Post Comments (10) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 20, 2013, at 7:00 PM, bcweir wrote:

    To be fair, ask BMW if people were able to lease a BMW in 1916 (the year BMW was founded). Or a Mercedes in 1885.

    "Yeah but they didn't have the technology we have today..."

    Don't change the subject.

  • Report this Comment On October 20, 2013, at 10:03 PM, dannystrong wrote:

    The reason Tesla doesn't want to lease cars is because they desperately need the money. A lease program is great for cash-flow, unless your company is perpetually six months from bankruptcy. Then you need the cash now, because you're busy trying to service the debt from the half-a-billion-bucks (or more, depending on your accounting) you owe.

    Let's look at Tesla's (and the Fool's) diversion on the 'lease' question, though. The we'll-buy-it-back means that they'll buy your Tesla back for 55-percent of its purchase value. (A Merc model-S depreciates about 15 percent a year.) Thus, a $104k Tesla would be worth (according to Tesla) $57k after 3 years. That means that Tesla will give you back $57k for your car (maybe. They could always change their minds. Or pick their own "depreciation" values to their advantage.)

    Your Tesla thus leases for about $1300/month. I can get an equivalent merc for between $500 (nice one) or $1000 (for yowza!) Oh, and the

    'acquisition fee'? Mercedes - about $7k. Tesla? $104k.

    This is just more fogging of things by Tesla, and its curiously un-cogent ally -- the Fool.

  • Report this Comment On October 21, 2013, at 2:10 AM, jeffhre wrote:

    Start with $250.00 a month saved on gas, a federal EV tax credit, and a gauranteed buy back price pledged from the personal assets of the founder of Tesla Motors. And the opportunity to work with your own bank or credit union you are familiar with (and not generally a $104,000 "acquisition fee" for a $70,000 car).

    This option, instead of being herded to the giant leasing company that gives the dealer a better deal on fees, seems like it's worth a try.

    If your $104,000 "acquisition fee" for a $70,000 car is totally off the mark, I would have difficulty putting my faith in the rest of that "information" as well.

  • Report this Comment On October 21, 2013, at 2:32 AM, weaponz wrote:

    The reason Tesla does not offer a lease option is obvious. They sell more cars then they can produce, which means Tesla has to chose who to give the cars to. And like all businesses they chose the option that provides the best advantage to them. If BMW, Mercedes and other Luxury brands stopped leasing cars, most of their cars would be left on lots unsold. That is because these luxury brands expanded their reach by offering leasing.

    Tesla created a financing/lease plan to allow people to do something similar to leasing but in a way that they hold the advantage by being paid 100% upfront. This allows them to invest into growing their company.

    The resale value of Tesla has not been a problem as you can easily check the resale value of the Tesla Roadster that is 5 years old and still holds one of the best resale values in the industry.

  • Report this Comment On October 21, 2013, at 9:41 AM, chinesebuffett wrote:

    Let's talk about Musk's personal pledge. Considering he pledged his assets in relation for the convertible note deal, including a large chunk of space x, this leaves very little for him to pay back to Model S buyers if it hits the fan.

  • Report this Comment On October 21, 2013, at 9:44 AM, chinesebuffett wrote:

    Tesla doesn't "sell more cars than they can produce" They produce cars towards sales creating a fictitious back log.

  • Report this Comment On October 21, 2013, at 10:47 AM, highgrowthcarson wrote:

    Guys. This is wrong. Been over and over all of this on SA. Here are the facts:

    As a consumer, you can effectively lease a Model S. It looks no different to you than a normal lease.

    The reason Tesla has gone to the strange seeming deals is TO ALLOW THE CONSUMER TO GET THE TAX CREDIT.

    In a conventional lease the tax credit would go to the bank as the owner of the car. The convoluted deal the folks at Tesla worked out transfers ownership to the consumer so that they can realize the tax credit.

    There are accounting consequences, but no cash flow consequences to Tesla. Wall Street has given them a pass, allowing the non-gaap numbers (which don't take into account the liability tesla may incur at the end of the lease) to be the 'real' numbers.

  • Report this Comment On October 21, 2013, at 9:11 PM, nonqual wrote:

    Hertz bought 3 for its rental fleet; one is at SFO and two at LAX.

    The guarantee is 50% of the 60 kwh version and 43% of all upgrades/options. There is no written guarantee from Musk; if you really think there is, ask a Tesla employee to provide you a copy. Oral promises are difficult to legally enforce--what was the consideration???

    The financing plan is another Musk ploy to push a looming problem out of sight, over the horizon. The car is over-priced, and he can't sell enough of them without Tesla offering the guarantee. Musk can't have it both ways; either battery tech will advance sufficiently to allow the Model E to be profitable at $35k (without the $7,5000 tax credit) and the used model Ss will be dated, old tech with used car market resale values below the guarantee. Or the Model E sales volume will not support the share price and those who buy today in reliance on the guarantee will have trouble enforcing it as just another general creditor, but they will still have to pay the bank.

  • Report this Comment On October 22, 2013, at 3:06 AM, weaponz wrote:

    nongal, sure you can have it both ways. And let me explain why.

    1) The Model E is a mid sized car where as the Model S is a full sized sedan.

    2) The Model S will still have more range then the Model E.

    3) The Model S will be upradeable to 500 miles

    4) The used 3 year Model S will hit the market before the Model E.

    5) The resale value of a Roadster was untouched by release of the Model S.

    Which means there is plenty of room for both. A used Model S and the Model E.

  • Report this Comment On December 11, 2013, at 9:09 AM, chinesebuffett wrote:

    The correct way to answer the leasing question would be that no we can't lease the Model S to you, because then you wouldn't get your tax credit that we have worked into the price of the car.

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