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Don't need financing but want Elon's guaranteed buy back

Discussion in 'Model S: Ordering, Production, Delivery' started by MrPinrel, Apr 7, 2013.

  1. MrPinrel

    MrPinrel Member

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    I don't anticipate needing the complicated lease/financing scheme announced recently, and I think all the voodoo math around hourly savings is hard to defend and unlikely to convince anyone.

    i am planning on either paying cash or getting conventional financing (don't need the financing for the down payment, etc).

    However I am interested in Elon's residual value guarantee. I think most of us wonder how well the Model S is going to hold its value, especially with Gen III and other future Tesla developments. I am sure having the piece of mind that, if we are unhappy, Tesla would buy back the car after X years for the same retail value as a Mercedes Benz would get a lot of people to decide to formalize their order.

    I asked at the Tesla store and was told the guarantee is only if you do the financing. Why? I would even guess that some people would pay an extra $2500 for "guaranteed resale value" or something like that...

    thoughts?
     
  2. 3lectronica

    3lectronica Member

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    Why part with your hard earned cash? Just take the financing deal at 2.95%, and sell the car back after 36 months. Keep it simple.
     
  3. rcc

    rcc Model S 85KW, VIN #2236

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    Elon's guarantee is an attempt at setting a baseline price on used Model S's.

    The financing buyback should ensure that a steady stream of used Model S's are available for sale by Tesla. Tesla will sell those used cars with a price based on the residual value (buyback price) plus some overhead cost plus profit.

    That in turn will set a baseline price for used Model S's that the rest of the market can see.

    Tesla may also, if they want to, get into the business of buying back Model S's from owners via sales or trade-ins. They will set the trade-in/buy-back value based on the residual value + other factors just like a BMW or Mercedes dealer.

    This is right out of the BMW/Mercedes playbook for using high leasing residual values to keep the value of used BMW/Mercedes high. It works if the car is appealing enough that the rest of the people selling use the dealer value as a realistic benchmark. Time will tell but if Tesla's engineering and quality holds up, I think this will work.

    If it works, you and I won't need the guarantee. We'll be able to sell our Model S's in the open market (or perhaps back to Tesla) at a price reasonably close to the Tesla buyback price. Just as if we'd bought a Mercedes S-class and were selling it on the open market a few years later.
     
  4. ModelS8794

    ModelS8794 Member

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    +1

    I'd only amend the sentiment to add that the 43% at 36-month residual guarantee isn't a particularly high hurdle to overcome. Even though that's the "official" ALG residual value on Merc-S today, the fact is Merc and BMW 7-series leases can be had from their respective leasing subsidiaries that apply a much higher residual value to the cars (54% at Merc and 59% for BMW 7-Series)... which only further backs up the strategy that rcc articulates.

    I see Musk's guaranteed buyback as similar to the pre-paid battery offer they announced a month or two ago - both seem designed to short-circuit the concern that many/most buyers have about untested technology and the potential for huge losses or surprises down the road. puting a floor on the potential downside means customers are better able to focus on the upside of ownership.
     
  5. smd

    smd Member

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    Is it possible to get the buy-back guarantee with a small loan of $10-20K? Is is possible to get the buy-back guarantee with a loan and then pay it off after 1 month and keep the guarantee?
     
  6. PMY2013

    PMY2013 Member

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    I was hoping to revive this thread a little. I am in the same boat as the OP, and had the same question as SMD. My Model S arrives in a week or so.

    In short, I am debating on whether to do a TechCU financing at 1.99% for some period of time in order to simply get the residual guarantee. I don't really need it, but there is something appealing about having a "floor" on the residual value just in case something happens, and there is the fact that the capital that would go to buying the car could be invested. It is also certainly possible that, at the end of three years, I would want a Model X, would want a different color or some other upgrade, etc. It is a nice option to be able to put the car to Tesla and get a new one like a standard lease.

    On the other hand, it sort of seems to me the "floor" may have been established already. I am one of the ones who ordered just before the price increase. Therefore, it seems to me that the value of my car went up the day the price increase was established. Second, I ordered a P85+. I am not sure that 46% (or whatever the the highest residual percentage is for a luxury car) at 65Kw is very useful.

    What are the latest thoughts on this? Thank you.
     
  7. texex91

    texex91 Banned

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    43% is a terrible residual.
     
  8. LASpark

    LASpark Member

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    #8 LASpark, Sep 7, 2013
    Last edited: Sep 7, 2013
    I was told the minimum loan to receive the buyback guarantee is $35,000 with a six month term. I decided to pass, I think the residual will end up being higher.
     
  9. stopcrazypp

    stopcrazypp Well-Known Member

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    For the 2013, the top three for 36 month residual value for the high end luxury segment are:
    Porsche Panamera - 63.5%
    Lexus LS640 - 54%
    Mercedes CLS550 - 53%
    http://www.kbb.com/new-cars/best-resale-value-awards/best-resale-high-end-luxury-car-2013/

    Slightly older 2012 data has the worst 4 being:
    Mercedes S-Class (S600/S65 AMG) - 30%
    Porsche Cayenne (Turbo) - 32%
    Mercedes CL-Class (CL65 AMG) - 32%
    BMW 760 (Li) - 33%
    http://www.cars.com/go/advice/Story.jsp?section=buy&subject=best_resale&story=loResidual

    So 43% isn't great, but isn't horrible either. It's about middling in this segment (don't expect the same as a car under $20k MSRP).
     
  10. texex91

    texex91 Banned

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    Considering it 'competes' with Panamera (only one in your example close) and it's worth 20% less, I'd call that not great at all--actually venture to say that's pretty bad.

    Hey I've ordered one, so don't shoot the messenger--just saying one of the worst residuals of any high end car I've owned.
     
  11. stopcrazypp

    stopcrazypp Well-Known Member

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    #11 stopcrazypp, Sep 7, 2013
    Last edited: Sep 7, 2013
    Well the second place quickly drops to 54% and that can be considered "high" and the lower bound seems to be 30%, so 43% is right in the middle of those two numbers (Note: from more research below, the ALG number is much lower for the Panamera, 55% for ALG vs 63.5% for KBB).

    Going two segments lower also sees similar drops when you reach third place:
    http://www.kbb.com/new-cars/best-resale-value-awards/best-resale-luxury-car-2013/
    http://www.kbb.com/new-cars/best-resale-value-awards/best-resale-entry-level-luxury-car-2013/

    Looking it up, buyback guarantee is actually better than 43%. It actually ranges from 47-50% depending on your options because it's structured for 50% for base 60kWh and then 43% for any addition on top:
    "This value is equal to 50% of the base purchase price of the 60kWhr Model S at the time of your purchase of the Vehicle, plus 43% of the original purchase price for all options including the upgrade to the 85kWhr battery pack (exclusive of taxes, fees and accessories)."
    http://www.teslamotors.com/sites/default/files/pdfs/tesla-resale-value-guarantee.pdf

    And I guess I can't be lazy, so I looked up the ALG residual (same rating the Model S uses just to be consistent) of similarly priced cars from the big three Germany makes. I kept in mind Model S starts at $74k before credit ($67k after), up to $108k for the P85+ before options, $127k for a loaded P85+ and filtered out trim levels way out of the price range.
    Audi A7 ($61-68k) - 45-47
    Audi A8 ($78-95k) - 45
    BMW 5-Series ($55-76k) - 44-48
    BMW 5-Series GT ($63-78k) - 41-45
    BMW 6-Series + GC ($81-104k) - 41-46
    BMW M5 ($108k) - 41
    BMW 7 Series ($79-100k) - 43-45
    Mercedes E-Class ($57-66k) - 49-52
    Mercedes S-Class ($94-102k) - 43-45
    http://www.cars.com/go/alg/index.jsp

    I also looked up the Panamera and it seems the 63.5% KBB number is an outlier (I only went up to GTS trim since that's already $128k):
    Porsche Panamera ($87-128k) 46-55
    http://www.cars.com/go/alg/index.jsp?makename=Porsche&modelname=PANAMERA&year=2013

    I also tried to look at Japanese Luxury brands (like Acura, Lexus, Infiniti), most of them are lower price, but here goes anyways with a $60k cut-off:
    Acura RLX Advance ($61k) - 46
    Lexus GS450h ($65k) - 47
    Lexus LS460 ($76-84k) - 48-49
    Lexus LS600hL ($122k) - 39
    Infiniti M35h ($60k) - 47
    Infiniti M56 ($71-72k) - 41-42

    So I maintain that the 43% is a middling price for this segment (maybe slightly below for the lower end, but once you reach past $100k then low 40s start showing up). The pricing Tesla is offering (47-50% by my calculation) is about middling too (maybe slightly above).
     
  12. texex91

    texex91 Banned

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    This is all assuming you go with Elon's 'offer'.

    I'm paying cash for my P85+, and NO one knows what residual will be.

    That's the problem, as there is not a secondary market for them on wholesaler auctions like Manheim, etc.

    Anyways, looking forward to my lower residual value P85+ to show up.

    My only point was the value is set by secondary market, which will not start to show up until next year.

    All's good in my book...bye, bye Porsche (better residual value car I've owned), but Tesla--very cool.
     
  13. AlMc

    AlMc 'Senior Moments' member

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    No one knows exactly what a new model from a new company will be. For that matter no one knew if the car company would exist in three years several months ago when the program was initiated. So, TM/Elon wanted to give potential buyers a company and personal guaranteed residual value. It was based on a Mercedes residual value percentage, as I recall. Unless a 'black swan' event takes place the residual value will probably be better than 43-48%. But if you want the 'insurance' then you have to go with their loan program.

    The other posters are correct that there is a minimum financing amount and you are not allowed to pay off the balance for 6 months.
     
  14. David_Cary

    David_Cary Member

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    All these numbers seem terrible when I remember the last car I leased. It was a 2005 BMW 545 fairly loaded with a purchase price of about $65k. The residual was 62%.

    I realize that was many years ago but I would think that things shouldn't have changed that much. It turns out the actual residual value was probably much lower since oil shot up in price after the purchase and 3 years later the economy was starting to tank. I transfered my lease early so I lost track.

    Mileage has to change the residual significantly and mine was 12k miles/year. Up that to 15k and I am sure you lose 3 percentage points.

    But either way 47% is pretty terrible in my opinion since maintenance issues mostly help with residual value - especially in BMW's case since maintenance was covered for the lease term for free. So an EV should have a higher residual all other things being equal.

    In the end, 47% is not a best guess. It is more of a floor, an insurance policy. Anyone doing TCO analysis always gives a much higher (usually unrealistic) value.

    My last ramble - the 47% gave me pause on purchasing since now I think I'll just wait 3 years. It really made me think and analyze the purchasers and how much they will want a newer car in 3 years. There are definitely purchasers that won't be getting a new car for 10 years but given the history of the majority of purchasers, I think there will be a lot of used inventory in 3 years. I am sure that that wasn't Elon's intent but he turned off this one buyer ... for now.
     
  15. jerry33

    jerry33 S85 - VIN:P05130 - 3/2/13

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    Originally it was based on Mercedes S, but that was later changed to be based on whatever the highest price car in that class is at the time of the buy back (Jaguar, Mercedes S, BMW 7, etc.) after people complained that Mercedes S had a very poor resale value.
     
  16. AlMc

    AlMc 'Senior Moments' member

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    Full disclosure: I did go with this program. I had intended to pay cash for the car. Put minimum amount down and will pay off in 6 months. This 'insurance' cost me about $300. Did not(and do not) think that was a bad investment.
     
  17. evme

    evme Member

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    The offer has changed since it was first announced, its 50% on the base and 43% on the options OR equal to a comparable Jaguar, Mercedes, Audi, Lexus, BMW and etc. Whichever is higher.
     
  18. texex91

    texex91 Banned

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    Oh. Do you have the link showing this?
     
  19. stopcrazypp

    stopcrazypp Well-Known Member

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    The exact wording seems to be:
    http://www.teslamotors.com/financing/faq
     
  20. texex91

    texex91 Banned

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    Yep. same one.

    50% of 60, then 43% of 85. Name another car company that has a residual as convoluted as that. Pretty bad either way...but it's all a crap shoot anyways.

    Key is keeping pipeline of sales filled and STEADY over the next few years.

    Tesla is a public company now, and with that comes some serious scrutiny.
     

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