With the help of two banks, federal tax credits for EV purchases, and math that even Wall Street would find fishy, Tesla now has an official loan program for the electric Model S sedan. Company founder (and noted pugilist) Elon Musk announced the news himself earlier this week, calling the deal a “revolutionary new finance product,” enabling buyers to get a $79,995 Model S for just $500 per month. Apart from the misrepresentation of the monthly price, there’s little that’s revolutionary about the loan deal—including the presence of hidden costs. If, then, Tesla truly is the car company of the future, one might call the company’s new financing offer the three-card Monte of the future.
What the Program Actually Says
- 63 monthly payments of $1097, excluding taxes and registration fees, for the 60-kWh model.
- 63 monthly payments of $1252, excluding taxes and registration fees, for the 85-kWh model.
- A down payment of 10 percent of the purchase price is provided by one of the partnering banks, US Bank or Wells Fargo.
- US Bank or Wells Fargo gets the buyer’s $7500 federal income tax credit for buying an EV, plus any eligible state tax credits.
- After 36 months (but only until 39), buyers can sell their Model S back to Tesla for 43 percent of the original purchase price.
Other than the buyback program, this is a pretty standard bank loan for a new car—including the decent 2.95-percent interest rate. Note, though, the fact that US Bank and Wells Fargo essentially are advancing tax credits, using them as a down payment now, and then collecting buyers’ money later from Uncle Sam. This sounds like a giant payday loan.
The Promotions are Littered With Misleading Info
The crux of the problem is Tesla’s use of an interactive calculator to determine what it calls a “true cost of ownership” for the Model S. This fatuous little feature allows people to enter their own variables—cost of gasoline over the next three years, how many miles they drive per year, what their time is worth in dollars per hour—and should your numbers match those Tesla has preselected as defaults, the company figures the real expense of a Model S is $500 per month. This isn’t just a “you’ve got to read the fine print” issue, nor is it really a problem with trying to assign a dollar value to minutes saved by driving in carpool lanes. The website setup could be misleading to most readers, makes fine print hard to find, and the calculator itself can be contradictory and makes unreasonable price comparisons.
Not $500 Per Month? Why Didn’t You Say So? It would be bad enough if Tesla was saying that the Model S effectively costs $500 a month once you factor in all the other savings from owning an EV instead of a comparable gasoline-engined car, but here, we don’t even get that kind of double talk. On its homepage and the Model S page, Tesla is presenting the “$500 per month” number without so much as an asterisk, let alone a “from” or “starting at.” To any reasonable viewer, we think, it looks like that’s the out-of-pocket cost through some available finance or lease deal. But it isn’t. Tesla’s web site shows the bogus price, then invites readers to, “Explore the True Cost of Ownership.” This is probably insufficient to signal that the “$500 per month” number is only the result of acrobatic math and that monthly payments under the normal financing deal will almost definitely be twice that high. If someone doesn’t click through to the calculator page, they simply won’t know. This is comparable to a car dealership putting an ad in the newspaper saying “Zero down payment! $199/month! ” only to tell you on the showroom floor that the ad means one can choose between having no down payment or paying $199 per month, not both. And that would be totally prohibited advertising.
Sorry, That’ll Be An Additional $2250. Once entering the calculator, or “True Cost of Ownership” section, things get worse. Nearly all the costs are described and calculated in three-year terms, because that’s when the “guaranteed resale value” option comes into the picture. That’s fine, but the fuel savings calculator nestled among these references to the buyback program defaults to driving 15,000 miles per year. Nowhere on the page does Tesla mention that the buyback program explicitly limits mileage to 12,000 per year, and that any miles in excess are charged at $0.25 apiece. Only if a shopper manages to dig up the PDF of terms would they learn that actually, to get the fuel savings from driving 15,000 miles a year, they’d have to pay an additional $2250 in mileage penalties.
Potentially Deceptive Price Comparisons? The “Business Tax Benefit” section also is potentially deceptive. Tesla describes the legitimately big potential for tax deductions if a Model S owner drives their vehicle for business. What Tesla doesn’t say is that any vehicle, EV or not, driven for business purposes is eligible for tax deductions. That’s not a problem unto itself, but considering that half the calculator hinges on savings of driving a Tesla Model S versus a conventional gasoline-powered car, Tesla might be considered to be making deceptive price comparisons. The fine print on the page only exacerbates the problem, stating, “This calculator is intended to give you an idea of how much you can save by driving a Model S compared to a gasoline sedan.”
- Instrumented Test: 2013 Tesla Model S
- Photos and Info: 2013 Nissan Leaf EV
- Photos and Info: 2014 Cadillac ELR
What a Waste
The sad part of this price comparison quagmire is that Tesla doesn’t need to do it. Its Model S is, flatly stated, very cool. The sedan looks great, drives well, is quick, and is a rolling piece of advanced technology. Orders are ample, and people who have already put down deposits still face a wait of several months for their cars. Yes, Tesla has said it wants to become a larger-volume automaker—although the feasibility of this is questionable—but a true lease program with lower monthly payments would be a far more effective way of achieving this goal. Even normally cautious commentators have been harsh about this “revolutionary new financial product,” and Tesla’s stock price has drifted downward since it was announced. Tesla should keep its focus on its cars being high-tech, not its loan programs.