Today's lease announcement was anticlimactic

[Norbert]

Agreed its nice not to have to stop at gas stations. However, do you believe that Tesla's helped or hurt the brand by ascribing an imputed default value of $100/hour to waiting at gas stations so as to imply the net value of a psuedo-lease is $500/month? :wink:

Probably this question is meant more as a rhetoric one, however I thought about what an honest answer would be. I think Tesla's situation is that they'd like to sell more than about 20,000 this year. The Model S appeals only to a certain percentage of customers in the first place, but many don't even know about it yet. They recently added a second option, in the calculator, for business use. It appears it is targeted to appeal especially towards specific groups. In order to get attention which includes these groups, they need to get widespread media attention, also to leverage the step into profitability Tesla has just made. The calculator includes a clear number for the monthly payment itself, so I think talking about potential "brand damage" is way overblown and part of the anti-EV sentiments which make it into the EV community itself. Expect Elon to play more attention-getters in the future, as Tesla is still widely unknown and (free) media attention is crucial for laying a fundament for the future. Early adaptors are often ready to buy a new product from a new company, however many people need to become familiar with the idea of buying an electric car from Tesla, at an early point, before they might then suddenly make a buying decision in 2014 or 2015.

 

[Larry Chanin]

Probably this question is meant more as a rhetoric one,...

Yes. :smile:

The calculator includes a clear number for the monthly payment itself, so I think talking about potential "brand damage" is way overblown and part of the anti-EV sentiments which make it into the EV community itself.

Based on what I've read by the reactions in this thread the I think if you will find that the majority of Tesla enthusiasts here question the wisdom of the way this financing plan was unveiled, particularly the $500/month fuzzy math approach. It is clear from reading neutral media sources, such as Motor Authority, Bloomberg and WSJ that Tesla's credibility was affected by this approach.

Larry

 

[Norbert]

Based on what I've read by the reactions in this thread the I think if you will find that the majority of Tesla enthusiasts here question the wisdom of the way this financing plan was unveiled, particularly the $500/month fuzzy math approach. It is clear from reading neutral media sources, such as Motor Authority, Bloomberg and WSJ that Tesla's credibility was affected by this approach.

Bloomberg and WSJ (not sure about Motor Authority) have a variety of reporting about EVs including some rather anti-EV biased. Cory Johnson on Bloomberg for example: in regards to his reporting about Tesla before it started Model S production. You'd have expected Tesla wouldn't be able to do it. But they were. Even John Voelcker was massively casting doubt, just a few weeks before Tesla started production, that they would be able to build "thousands" of cars. But they do.

In other words, much of the "neutral" media don't believe the EV or Tesla "hype" in the first place (yet continue to prove themselves wrong), and just use this "$500" marketing attention-getter as an opportunity to justify themselves. At the same time, reporting about EVs in the media frequently mentions pseudo-'critical' wrongness after wrongness without really being taken to task for it.

So, in the match for credibility, Tesla vs "neutral" media, I think Tesla wins.

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BTW, if you check both business tax benefits (old and new), yet *uncheck* both time savings, for the 60 kWh battery, you still arrive at $346 / month, in CA.

 

[Norbert]

Agreed its nice not to have to stop at gas stations. However, do you believe that Tesla's helped or hurt the brand by ascribing an imputed default value of $100/hour to waiting at gas stations so as to imply the net value of a psuedo-lease is $500/month? :wink:

Not necessary to use $100/hour. Here is a simple way to get to $494/month without any business tax benefits, and with an hourly rate of $50:

Carpool lane savings of 10 minutes /day and 4 gas station stops /month, 10 min each. (Applies easily in the Bay Area). (Also 60 kWh, California.)

 

[AnOutsider]

Norbert, did this make you want to go out and order a Model S? Or buy more stock?

 

[JakeP]

Norbert, did this make you want to go out and order a Model S? Or buy more stock?

Precisely. Unlike immediate expansion of the Supercharger network and capabilities, which is truly the sine qua non of Tesla's ultimate success in the US, this fluff announcement lacked any real factor that would drive Tesla sales. There is a vast amount of pent-up demand in people who lease luxury autos for business who are the critical target of any lease program, and they cannot and will not use this program, because they cannot take advantage of the benefits of an actual lease, which is to expense the lease payments and operating costs. This announcement was utter fluff, and the fantasy-land "cost of ownership" accounting lost credibility. It reminded me of a guy I knew who used to monetize the value of his frequent flyer points when calculating his effective salary...total fantasy land.

 

[ModelS8794]

Precisely. Unlike immediate expansion of the Supercharger network and capabilities, which is truly the sine qua non of Tesla's ultimate success in the US, this fluff announcement lacked any real factor that would drive Tesla sales. There is a vast amount of pent-up demand in people who lease luxury autos for business who are the critical target of any lease program, and they cannot and will not use this program, because they cannot take advantage of the benefits of an actual lease, which is to expense the lease payments and operating costs. This announcement was utter fluff, and the fantasy-land "cost of ownership" accounting lost credibility. It reminded me of a guy I knew who used to monetize the value of his frequent flyer points when calculating his effective salary...total fantasy land.

JakeP are you sure about this? The numbers may be different year by year in lease vs buy, but both allow deductions for interest, depreciation, and operating costs while in service. and with the guaranteed put back to Tesla at year three, and the ability to deduct losses with the disposition of the car, it seems that the tax implications would not be a limiting factor here.

I come away from this announcement feeling the program actually addresses the needs and desires of potential lease customers, and that this program will in fact help expand Tesla's addressable market.

 

[vfx]

I said all this upthread. Tesla does not traditionally advertise. This is free-ish publicity.

 

[JakeP]

JakeP are you sure about this? The numbers may be different year by year in lease vs buy, but both allow deductions for interest, depreciation, and operating costs while in service. and with the guaranteed put back to Tesla at year three, and the ability to deduct losses with the disposition of the car, it seems that the tax implications would not be a limiting factor here.

I come away from this announcement feeling the program actually addresses the needs and desires of potential lease customers, and that this program will in fact help expand Tesla's addressable market.

This is definitely my conjecture about what people will or won't do, but as a small business owner myself I have both leased and purchased/depreciated vehicles. Most people choose to lease, because they get a new car every 2-3 years, and because expensing the lease cost is dramatically simpler than depreciating. For example, take the Model S situation. If this was a true 3-year lease and the payment was 1200/mo, you would be able to deduct 1200*12 = 14,400 in lease costs for each of the three years, plus operating costs, which could include your HPWC and electric bills, plus any service plan required by Tesla. Instead you purchase the car, and must depreciate it. Immediately you encounter the Section 179 depreciation expense limits on passenger vehicles, which limits you to 11,160 in the first year, and then 5,100 for the second year, then 3,050 for the third year, a sum of 19,310 which is considerably less than 14,400*3 = 43,200. Then after three years you are subject to a gain/loss calculation, which determines the sale price less the net book value. Let's say you paid 100K and then sold after three years for 43K, using Tesla's example. Gain Loss is then 43K - (100K - 19,310) = a loss of -37,690. So what you lost on deprn expense, you make up as a loss at time of sale, if it sells for that low of a price after three years...but that all depends on the sale price. And the loss can only offset your other income and gains, I believe.

So you might financially be better off buying and depreciating for tax purposes, but I don't think that most people want to deal with depreciating and then gain/loss if they can help it just because of the complexity of carrying this asset across tax years, which is why most people lease luxury vehicles for business. When buying a vehicle, they typically but an SUV, which isn't subject to the Section 179 limitations because it has a GVWR of over 6,000 pounds. This so-called SUV loophole actually lets you take 100% of the vehicle cost as depreciation in the year it is placed in service, under the various bonus depreciation allowances currently available from stimulus legislation since 2008. If my Tesla had been 300 pounds heavier, I think I might have been eligible for this!

 

[Krugerrand]

Based on what I've read by the reactions in this thread the I think if you will find that the majority of Tesla enthusiasts here question the wisdom of the way this financing plan was unveiled, particularly the $500/month fuzzy math approach. It is clear from reading neutral media sources, such as Motor Authority, Bloomberg and WSJ that Tesla's credibility was affected by this approach.

In the end, 'the way' is and will prove to be irrelevant. Nobody is going to remember it, or care, when the financing program is successful. For now it was an attention getter, whether you agreed with 'the way' or not. Already there is a shift happening as people's brains click in and they begin to understand the bigger picture and are able to get over their personal feelings about 'the way'.

 

[Norbert]

Norbert, did this make you want to go out and order a Model S? Or buy more stock?

It made me check my numbers, which I think is the goal. I also lived several times in a situation where the detour/time for a gas station, and the lack of access to an HOV lane, was a nuisance I was conscious of. So in my personal case, it was a smart move to appeal to that.

As a share holder, I do think that Tesla did their best to offer a great financial package, in order to reach those 50% of customers who usually lease a car. (Also, Elon said they'll continue to work on trying to make it even better.)

However, personally I wouldn't think this was as "exciting" as becoming profitable, but I think this step was a requirement for Tesla to increase its sales numbers towards 2014 as it tries to get above 20,000 / year.

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So you might financially be better off buying and depreciating for tax purposes, but I don't think that most people want to deal with depreciating and then gain/loss if they can help it just because of the complexity of carrying this asset across tax years, which is why most people lease luxury vehicles for business.

Seems to me here you are contradicting yourself. Tesla doesn't need to sell to "most" people. It is fine if they sell to a small percentage, as long as they get enough to consider an electric car.

 

[Norbert]

Tesla's media strategy: build a brand without spending on advertising - San Jose Mercury News

"Elon Musk is a marketing genius, in our view," said Adam Jonas, an analyst who covers Tesla for Morgan Stanley. "A tactful use of social media means a tiny car company has the best known financing program on the planet.... Mainstream OEMs (original equipment manufacturers) are being taken to school here."

Morgan Stanley agrees.

 

[aronth5]

While I agree it was anti climatic it also has created an unexpected market of used Tesla's in 3-4 years.
That is genius in my mind. Just about the time Gen3 comes out the public will also be seeing lots of Model S's available at decent prices.

 

[jimbakker666]

Came here to read up about the $500/month Model S lease. Found out it's more than double that in reality. Good job Tesla, your marketing always delivers the stinkeyes.

 

[cwerdna]

Not necessary to use $100/hour. Here is a simple way to get to $494/month without any business tax benefits, and with an hourly rate of $50:

Carpool lane savings of 10 minutes /day and 4 gas station stops /month, 10 min each. (Applies easily in the Bay Area). (Also 60 kWh, California.)

I noticed they've changed the defaults again and now even included a "include tax benefit from sale" checkbox.

By Tesla's logic/math, the shorten commute and avoid gas stations "savings" would make a $199/mo 3 year lease on a Leaf (New York Area Nissan LEAF Offers - 0.0% APR - $199 Lease - $21,300 Net Value After Federal Tax Savings - Nissan USA used 95136 zip code) "free", minus the initial down payment. The Leaf's maintenance isn't $600/year or $1900 for 4 years either.

Still seems disingenuous to assume $5/gal for premium avg gas for the next 3 years and 15K miles when http://www.teslamotors.com/sites/default/files/pdfs/tesla-resale-value-guarantee.pdf assumes 12K miles year while premium is currently $4.219/gal on average in CA per http://www.fuelgaugereport.com/. I don't think CA's average for premium has ever reached that. If it has, it didn't stay there long.

 

[Norbert]

By Tesla's logic/math, the shorten commute and avoid gas stations "savings" would make a $199/mo 3 year lease on a Leaf (New York Area Nissan LEAF Offers - 0.0% APR - $199 Lease - $21,300 Net Value After Federal Tax Savings - Nissan USA used 95136 zip code) "free", minus the initial down payment.

In fact it seems a number of people buy a Leaf while also keeping a gasoline car. In quite a few such cases, carpool lane access may be part of their reasoning why having another car makes sense to them.

 

[JakeP]

Seems to me here you are contradicting yourself. Tesla doesn't need to sell to "most" people. It is fine if they sell to a small percentage, as long as they get enough to consider an electric car.

No contradiction here, you are better off with the buying and depreciating scenario if your goal is to maximize the tax deduction, but you are better off leasing if your goal is to minimize total dollars spent net of the deduction. In the buy and depreciate scenario, you get 57,000 in tax deductions over three years, most of which occurs as a loss when you sell. Assuming a tax rate of 30% for easy math, that is 17,100 in tax savings, for a net spend of 57,000 minus 17,100 = 39,900. In the lease scenario, the payments totaled 43,200, which yields a tax savings of 12,960, spread evenly over three years. But your net cost is only 43,200 minus 12, 960 = 30,240. So you spend over 9K less on the lease, for the same car for the same three years. Not to mention for the lease, you didn't have to finance 100K, you just had to pay the monthly amount. This is why "most" business owners will lease luxury autos rather than buy them: it is cheaper, less complicated, and far less hassle at tax time. This is true even for many large companies I work for...passenger car fleets are generally leased. Trucks and SUVs are purchased, because the bonus deprn allows for expensing the entire amount of the vehicle in the first year. And just for comparison, in my example the lease cost was 1200/mo, which is roughly what you will pay for a 36-month lease on a well-equipped BMW 7-series (I am seeing $979/mo for a 750Lix with 4500 down payment in my area, and prorating the 4500 over 3 years gets you very close to 1200).

 

[SebastianR]

I said all this upthread. Tesla does not traditionally advertise. This is free-ish publicity.

Yes. And the beauty is to exploit the media's need for controversy by providing a 'controversy bait' that makes people have the kinds of discussions that Tesla needs them to have if Tesla wants to be successful. I like how everybody is now debating how much it really is worth not to visit the gas station again, how much it is worth accessing HOV lanes etc. That's brilliant since it is a very neat way to make intangible advantages of the Model S tangible.

Edit: What I meant to say is, this is a way to quantify advantages of the Tesla which would otherwise be glossed over and not typically be considered when comparing on price only.

 

[ModelS8794]

No contradiction here, you are better off with the buying and depreciating scenario if your goal is to maximize the tax deduction, but you are better off leasing if your goal is to minimize total dollars spent net of the deduction. In the buy and depreciate scenario, you get 57,000 in tax deductions over three years, most of which occurs as a loss when you sell. Assuming a tax rate of 30% for easy math, that is 17,100 in tax savings, for a net spend of 57,000 minus 17,100 = 39,900. In the lease scenario, the payments totaled 43,200, which yields a tax savings of 12,960, spread evenly over three years. But your net cost is only 43,200 minus 12, 960 = 30,240. So you spend over 9K less on the lease, for the same car for the same three years. Not to mention for the lease, you didn't have to finance 100K, you just had to pay the monthly amount.

A $100k up front price, 3 year lease term, and 43% residual value will not = a $1200 lease payment, even at 0% interest. I believe you also did not account for your $7500+ EV tax rebate in the purchase scenario (which tax break you could not take advantage of if you lease).

On another note, you mentioned the 6000 pound limit and that got me thinking, Model X is gonna sell like hotcackes to the business write-off crowd! It's no wonder luxury SUVs are massive sellers.

Cheers,
A

 

[JakeP]

Totally understand, and was not trying to indicate that there would necessarily be a lease offering with the same monthly payment amount. And I must have swallowed the kool-aid on the 7500 amount, because I just netted it to zero in the purchase scenario against the down payment. I was just trying to show how you would need to account for each approach separately, and how much simpler the lease is from a business owner's perspective...just deduct the lease payment amounts, period.

Absolutely agree on the Model X being perfect for purchase an write-off, I only wish Model S had been eligible!!!