Tesla Motors, Inc.: Leasing Is Finally Here

What exactly is the residual value of a fully electric Tesla (NASDAQ: TSLA  ) Model S? Banks have had a difficult time answering this question because Tesla is the first purely electric U.S. vehicle manufacturer to pursue financing programs. There's no precedent. How can banks know how well Tesla's vehicles will hold their value?

This dilemma has prompted Tesla to come up with few customized financial products to address the problem. Tesla's latest financial product offers business owners a way to lease its vehicles under a new subsidiary called Tesla Finance. For investors, this is great news -- Tesla's new business is another way to help secure future demand for its vehicles.

Model S. Source: Tesla Motors official Twitter feed

Tesla's financing and leasing solutions
How can Tesla address the uncertainty of bankers regarding the resale value of a Model S? Simple: Guarantee the resale value. That's exactly what Tesla did last year. Not only did Tesla guarantee that the Model S will have the top residual value of any high-volume premium sedan brand (Audi, BMW, Mercedes, or Lexus) after three years of ownership, but Tesla CEO Elon Musk personally promised to stand behind the guarantee.

The financing move was compelling for customers. Not only did it provide the same flexibility in leasing by enabling owners to trade in their cars after three years, but owners are still able to take advantage of the $7,500 federal tax credit -- something Tesla customers couldn't do if they were to lease.

But with the launch of Tesla Finance, the company has finally made leasing a reality for businesses -- adding even more flexibility for customers. The leasing arrangement makes taking business deductions for Model S payments easier than ever.

To top it off, Tesla made the new program as pain-free as possible:

While customers have become accustomed to lease agreements that run as long as 10 pages, we found that we could say all that needed to be said in less than three pages – and it's written in plain language.

In keeping with the Tesla way of doing things, our customers can handle and sign their lease agreements completely electronically. Customers are able to view an electronic version of the lease agreement upfront before delivery. Even the signature process at delivery is simple: a one-button tap on the 17-inch touchscreen in their new Model S is all it takes.

Another reason to be confident in Tesla's demand story
Tesla's ability to remain supply limited with excess demand is key to the underlying investment thesis for the company, especially with the stock trading at such lofty valuations. Currently, investors can rest easy -- there's no evidence demand limitations are on the horizon. Not only is the company spending zero dollars on advertising, but it also doesn't have any plans to initiate paid advertising. Further, near-term catalysts should help boost demand. Its Model X SUV is due next year and the company is rapidly expanding into new, key markets. And now a new leasing business gives Tesla's demand story even more credence.

Obviously, Tesla's demand trajectory may not always look so robust, which is why investors should keep an eye on factors that may affect demand for its vehicles.

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Read/Post Comments (5) | Recommend This Article (1)

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 April 08, 2014, at 6:48 PM, Ustauber wrote:

    ThxTsla

    Once again!!

  • Report this Comment On April 09, 2014, at 11:58 AM, jameshall69 wrote:

    The stock pumping author with his latest pump the stock every three days article. "This new lease program is good news for investors" i beg to differ. Decreasing US sales, very soft european demand bar Norway and trying desperately to meet unrealistic growth goals via lease programs and claiming them as sales is not good news for the investor. Where is the article outlining the fact that battery partners are not signing up to the gigafactory as they understand the lack of demand? Or have concerns on committing to outdated battery technology for the long term. Or that the analyst that tipped tesla for $325 a share then had the same company underwrite more financing for Tesla 2 days later? Full disclosure, i am not long or short tesla, i just love watching this fraud unfold.

  • Report this Comment On April 09, 2014, at 4:42 PM, TMFDanielSparks wrote:

    @jameshall69

    This article does not suggest the stock is a buy, only that shareholders should be incrementally more confident in demand. If demand is indeed softening (and that conclusion would only be based on purely speculation), then a leasing program would be incrementally better for investors rather than a bad thing.

    I would venture to say that most tesla shareholders would prefer that leasing is available to customers (as it is to any other customer of other manufacturers).

    As far as the gigafactory goes, the announcement was only recently made. I don't see any reason why Tesla won't be able to align partners or finance the factory. Even from the start, Panasonic was never guaranteed by Tesla. The company acknowledged that there is a possibility Panasonic would not be a part of the deal. If Panasonic decides not to be a part of the deal, that will make a great story; but as of right now Panasonic has not completely decided not to be a part of the deal.

    And I'm not sure what lack of demand you are referring to since the company sells every car it makes and its expanding into new markets.

    Also, could you provide the link for your evidence of "very weak European demand"? And what does that mean? The only way we can be sure demand is week is if production exceeds supply for the first time this quarter. Is that what you predict? That production will exceed supply this quarter? I also don't think its fair to say demand is "weak" when the company is not spending a penny on paid advertising and has no current plans to initiate paid advertising. Could you provide concrete numbers on why demand is weak and how that conclusion was made? A conclusion beyond some random analysts speculation?

    Thanks for your comment.

  • Report this Comment On April 09, 2014, at 4:44 PM, TMFDanielSparks wrote:

    **meant to say "that production will exceed demand this quarter?"

  • Report this Comment On April 12, 2014, at 6:46 PM, 68surfer wrote:

    Thank you Daniel for the well written and understandable article. It seems that many speculators are seeing a so called decrease in demand, but cannot put together the evidence of such. The only people who know the true demand of the S are those at Tesla motors. I am not sure why people do not understand the fact that Tesla has to meet demand for those that have been waiting the longest to get their car, and the implications of not having an advertising budget. Cheers!

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