Tesla increased the guaranteed residual value of the Model S

Article by Christian Andrei, on May 6, 2013

After the three-year lease-to-own period of Tesla’s electric Model S sedan, its guaranteed residual value will be raised to 50%. The guaranteed residual value has been compared to the 43% of the Mercedes-Benz S class, which is low when compared to the overall luxury segment considering that it has been 36 months already.

At a recent conference call, Tesla CEO Elon Musk said that the company is prepared to make the major jump from 43 to 50%. This means that for a base Model S that’s priced at $71,070 (which includes shipping and fees), $250 is taken away from the monthly payment, bringing it down to around $800.

In a statement, Musk said that technically, the Tesla program is not a lease. Instead, it’s a purchase program that comes with a guaranteed "put option" after a three-year period.

Tesla’s statement says that the revised residuals mean "a guarantee that the resale value will be higher than that of BMW, Audi, Mercedes, Lexus or Jaguar."

Tesla also said that the revised residuals will be applied retroactively to those who have financed a Tesla through US Bank or Wells Fargo from April 2 onwards.

Tesla aims to produce around 20,000 Model S sedans in 2013. If a consumer places an order today, there would be a long wait of over six months. It’s not only Tesla that’s backing the guarantee. Musk is personally putting up his funds too.

Forbes magazine estimates that he has a net worth of $2.7 billion. In addition, US Bank and Wells Fargo have extended longer-term loans to cut the monthly payment of the Model S, from 63 months up to 72 months.

Musk said that around 20 or 25% currently use Tesla's financing via Wells Fargo or US Bank. But with the expectation that more financing partners will arrive, Musk thinks that around 65% will use Tesla's financing plan.

Tesla explained that it has revised several of the defaults on its Web site's payment calculator so that there will be a more precise measurement of gasoline prices and depreciation used for business.

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