New lease-style plan expected to generate more revenues at Tesla

Article by Anita Panait, on September 16, 2013

Tesla Motors is planning to buy back Model S electric cars from customers using its lease-style option, a move that could generate more revenues when the carmaker sells used cars, according to Bloomberg Industries. The move provides Tesla with more control over used vehicle resale prices than traditional carmakers, according to Bloomberg Industries analyst Kevin Tynan.

He said that used Model S sales may generate up to $368 million in annual revenue in 2016, or an additional $40 million in annual gross profit.

Tynan told Bloomberg News in an interview that “buying back three-year-old cars” at a set price means Tesla can control the secondary market for Model S and other cars it offers. He remarked that Tesla will be the main buyer and has the chance to earn a “second gross profit on the same car.” Tynan estimates that Tesla is offering 46 percent of the Model S’s original price.

The finance plan is in line with Tesla chief executive Elon Musk’s avoidance of traditional industry practices. Tesla announced the finance plan in April and was initially criticized for overstating customer savings.

The plan -- backed by Wells Fargo’s and U.S. Bancorp -- guarantees a resale value for Model S “equal to 50 percent of the base purchase price” of the entry-level car, which is around $70,000, and “43 percent of the original purchase price for all options” after 36 months, according to a Tesla agreement obtained by Bloomberg Industries. In a May revision to the plan, Model S owners can choose to keep their cars, with loans running up to six years.

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