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Reintroduce 'Resale Value Guarantee' for Model S again?

Discussion in 'Model S' started by CitizenChris, Mar 26, 2017.

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Would a Tesla Model S resale guarantee increase your confidence in the cars resale value?

  1. Yes, it would make me feel better.

    16 vote(s)
    43.2%
  2. No, the guarantee would likely be so low that it doesn't matter

    21 vote(s)
    56.8%
  1. CitizenChris

    CitizenChris New Member

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    Hi,

    with the sale and delivery of the Model 3 hopefully beginning this year, I am wondering, if it would be a welcome decision of Tesla's to reintroduce 'guaranteed resale value' again.
    I have been browsing around a bit and picket up that some Model S owners and prospective buyers are concerned about the Model 3 affecting the Model S resale negatively. Would it make you feel more comfortable if Tesla would offer such a guarantee again? Regardless of whether this would be a general guarantee or again connected to a specific financing option.

    The reason why I am asking this is that I am working on a class assignment, developing a growth strategy for Tesla.
     
  2. whitex

    whitex Active Member

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    Ok, I'll bite. Since you say you are working on a strategy for Tesla, what's in it for them? What would Tesla as a company gain doing so vs. what would they risk loosing (accounting liabilities, etc)? List all the pros and cons. What did previous guarantee do for them and/or cost them? Also, a lease option already provides a value guarantee, why isn't that sufficient?
     
  3. Snowstorm

    Snowstorm Member

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    I would love it as a consumer, but I am unsure of how Tesla accounts for this as a potential liability if they guess the value wrong. They can low ball it, or it will make the model s look bad, a high estimate may incur unknown liability. You do sort of have this if you lease the car, but then you'll have to pay interest for that benefit.

    I was thinking of leasing with 100% down, so to have the benefit of residual gauabtee wig no interest charge, but they only allow max down of 25%. Not sure why unless Teepan is also making money on the lease.
     
  4. JPUConn

    JPUConn Member

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    I've always gone the opposite and put $0 out of pocket on a lease. If you happen to wreck the vehicle in my scenario the lease gap insurance takes over or you get a check (depending if upside down or ahead) vs your method your gonna have a very difficult time recouping your out of pocket as it will be based on likely high depreciation first couple years.

    I don't disagree with leasing and will likely do so with the 3, I'd rather take the $ and invest it conservatively over the term of the lease.
     
  5. Dwdnjck

    Dwdnjck Member

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    Teslas don't need no stinking guarantee.
     
  6. CitizenChris

    CitizenChris New Member

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    Ideally the costs to them are negligible. The benefits would be similar to the original 'Resale Value Guarantee', i.e. by reducing uncertainty in the market, make people more comfortable with pulling the trigger on buying a Model S and thus increasing the likelihood that an interested person ends up buying the S.
    Now Snowstorm has a good points, but I would expect that Tesla is building the Model 3 such that it is not competing too much with the S. My idea that the costs are negligible might be a bit audacious, but it depends on getting that level of guarantee right. Tesla seemed to have been able to do that in past correctly - the guarantee was there, but selling it to another person was in general the better option (correct me here if I am wrong). And I am sure that they can do it again.
     
  7. Uncle Paul

    Uncle Paul Member

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    Guarantee was used because buyers were uncertain about the resale value of a brand new form of transportation.

    Now that the resale values have been pretty normal, that guarantee is not as necessary.
     
    • Like x 1
  8. David99

    David99 Active Member

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    They resale value guarantee was a joke. After 3 years they offered me $7000 less than the car was worth according to blue book. The resale value of the Model S is comparable to other cars. But Tesla's promise was a joke.
     
    • Like x 1
  9. GoTslaGo

    GoTslaGo Learning Member

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    IIRC the RVG created some "issues" with Tesla's accounting. Which of course led to people who are opposed to Tesla to declare that Tesla was cooking the books. Better to let it die, and stick with accepted accounting rules.

    Anyhow there are enough Teslas out there to establish resale value guidelines which the model 3 will be able to be valued, as noted above.
     
  10. whitex

    whitex Active Member

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    Let me save you some thinking, as I've gone down this path with Tesla 3 times already. While I've done very large downpayments on leases in the past (since I can do math and sometimes it is advantageous, for example when there are special low interest rates on leases but not loans), a lot of car leases have a down payment max, typically at cap cost (cost-residual). Tesla has an even higher down-payment cap and will not let you put more than 25% down. Tesla leases are also typically at higher interest rate (>2x last December) and most importantly you don't get to keep the $7,500 federal tax credit - what they do is add the $7,500 to the residual value instead. That that means is if you give the car back, technically you benefited from it because it lowered your cap cost, but you paid 4 years of interest on that $7,500. If you end up keeping the car at the end of the lease, you both paid interest on the $7,500 AND you have to pay the $7,500 itself because it was added to the residual.
     
    • Informative x 1
  11. whitex

    whitex Active Member

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    I think you'll have to speak to an accountant for your project before you make such sweeping assumptions. Committing to purchase a whole bunch of cars imputes a liability on the company.

    That is the purpose for which leases are intended. Initially Tesla needed to have the guarantee (backed by Elon's personal wealth btw, in case Tesla was to fold) because they were a brand new company and even leasing companies had a hard time coming up with any residual values because of lack of sales history. After close to 5 years of Model S, that is no longer an issue.

    I think for your school project:
    1. You'll need to quantify the actual, risk based cost (as do leasing companies that guarantee residuals) - find an actuarial science major to help you with this.
    2. Attempt to quantify the potential benefit. How many more sales would Tesla make if they brought back the guarantee, but without Elon's personal backing (so if Tesla folds, no guarantee)? Then, how many of those "new sales" are actually just people who would have leased had the guarantee not been available?

    Once you have the costs and the benefits quantified, your conclusion writes itself! :)
     
  12. calisnow

    calisnow Banned

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    You set the situation up as though the guarantee is free - so sure, obviously I'd take it. Who wouldn't? Any rational consumer will accept additional benefits and no additional cost.
     

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