PALO ALTO -- Tesla Motors (TSLA) unveiled a new financing option Tuesday, joining forces with Wells Fargo and US Bank to make it possible for consumers to drive the all-electric Model S sedan without buying it outright.
"This makes it more affordable," Tesla CEO Elon Musk said in a highly hyped conference call with journalists. "We're helping to broaden the access of customers to the car, and I think that's a good thing. That's really our goal."
The details of the program, which Tesla says combines the best aspects of leasing and ownership, are complex. Consumers will have to have strong credit ratings and come up with 10 percent down, and roughly $1,200 a month, for the 66-month loan term. The base price of the Model S is $69,900 before the federal tax credit; higher-end versions with larger battery packs cost more.
Tesla stresses that the "effective monthly cost" is only $543 a month because consumers can reap federal and state tax credits, save money on gas and drive in the carpool lane. Also, drivers who use the car for business purposes can deduct depreciation and other expenses from taxable income. Tesla's somewhat fuzzy math assumes your time is worth $100 an hour, and that you will save time on both trips to the gas station and on commuting.
After 36 months, drivers will have the right, but not the obligation, to sell the Model S back to Tesla for what the company describes as the "same residual value percentage as the iconic Mercedes S Class." Or they can continue making payments and eventually purchase the car.
"It's not a lease per se, it's financing over five years," said Musk. "I am personally standing behind that residual value, even if Tesla is unable to. That's what I mean by putting my money where my mouth is."
Alec Gutierrez, a senior analyst at Kelley Blue Book, said Tuesday that the financing option will help increase demand for the vehicle.
"They are promoting it as a value proposition, that it's only about $500 a month," said Gutierrez. "But really they are guaranteeing the residual value. Someone who was considering a Mercedes can now jump into a Model S, and if they don't like it, they can get out scot-free in three years."
The financing is expected to appeal to the typical buyer of high-end luxury sedans.
"A lot of people want to drive the Model S just because it's fun, but they don't want to tie up their capital with a huge down payment," said Andrea James, a senior research analyst with Dougherty & Company. "This covers that concern. High-income earners might rather keep their cash on hand for a rainy day, and simply pay $14,400 per year on a lease."
When asked what kind of credit score was needed to qualify for the financing, Musk said credit score information is proprietary to the banks, but that customers have to have good credit for the best terms.
Musk is the chairman of San Mateo-based SolarCity, which is run by his cousins Lydon and Peter Rive. SolarCity pioneered the concept of a no-money-down solar lease in the residential solar market, and has quickly grown into one of the nation's leading solar brands.
"When we did this with SolarCity it had a tremendous affect on consumer adoption," Musk said.
The new financing option will not be available for current Model S reservation holders.
Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.
For more information about the new financing option, go to www.teslamotors.com/true-cost-of-ownership.