The Fool's own senior auto analyst, John Rosevear, sits down with Richard Engdahl for an in-depth look at Tesla (TSLA 12.81%) and the electric vehicle market.
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.
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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.
