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Tesla’s new non-lease option

Tesla announced a “new finance product” that’s an interesting hybrid of buying and leasing. Supposedly, you buy the car with favorable financing terms, but with a minimal down payment (after tax subsidies) and a buyback option at a fixed residual after 36 months. It sounds like the tax benefits and flexibility of owning, but the predetermined resale benefit of a lease.

I wish Tesla would stop playing fast and loose with the numbers, though:

When considering the savings from using electricity instead of gasoline, depreciation benefits and other factors, the true net out of pocket cost to own a mid-range Model S drops to less than $500 per month.

What does “true net out of pocket cost” mean?

The middle Model S, by Tesla’s own calculator, will require you to pay at least $7,990 as a down payment — probably more — before you get any tax credits.1 Even ignoring the significant up-front costs, their calculator is quoting a $711/month “total cost of ownership”, which is actually a $1,252/month car payment on a 5-year loan.

That’s pretty far from “less than $500 per month”, so let’s give them the benefit of the doubt and assume that by “mid-range Model S”, they really meant “the cheapest Model S with zero options”. That brings the actual payment to $1,097/month (again, hand-waving away the substantial up-front costs), or a $471/month “effective cost”. This is probably the figure that Tesla based this claim on.

But that price is also based on a number of extremely optimistic assumptions:

So if you live in most states, don’t deduct your vehicle as a business expense (most people’s vehicles don’t qualify), and would otherwise buy a 5-series, your “effective cost” by Tesla’s calculator rises to a minimum of $906/month — and that’s for their cheapest model with no options, assuming that a surprise rich benefactor comes out of the woodwork to pay all of your sales tax and the remaining up-front costs after tax credits.

Tossing around that “less than $500 per month” figure to the press and the public is dishonest at best.

  1. The middle model, 85 kWh but not “Performance”, starts at $79,900 MSRP with no options added (unlikely) before a $7,500 U.S. federal tax credit. The 10% down payment required by the bank needs to be based on the full, pre-tax-credit sale price since that’s what the bank is paying, so the down payment for a “mid-range Model S” is at least $7,990 plus sales tax (unless tax is rolled into the financed amount, in which case the monthly payments will be noticeably higher). Average U.S. sales tax seems to be about 7%, which would put the down payment at $13,583. ↩︎