How does Tesla buy-back "set the market"?

Elon has guaranteed the funds regardless of the state of Tesla Motors, so that's the minimum amount that you can get.

tomp said:

I'm trying to decide about financing via Tesla or elsewhere. I see the value of Tesla financing in that in guarantees that the users of Tesla financing can sell the car at a set price in 3 years. But I don't see how it benefits other MS owners.

Others have said that the Tesla buyback program 'sets the market' for used MS's. I don't completely get this. If there is some unforeseen problem(s) with Tesla or the MS, won't my MS only be worth what a private buyer is willing to pay (assuming I don't do Tesla financing)?

What am I missing here?

Thanks!

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Yeah, I don't get this either. Take a look at some of the Model S currently on cars.com or autotrader.com & try to interpolate what the dealers actually paid the owners in trade.

jerry33 said:

Elon has guaranteed the funds regardless of the state of Tesla Motors, so that's the minimum amount that you can get.

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True, but that only for cars financed through Tesla's particular financing agreement. In theory, that means that helps set the used price since some portion of the cars have a guaranteed buy back amount.

However, that only works if the S has other reasons to hold value. If some fatal flaw comes out and Tesla goes bankrupt, Musk might guarantee the specially financed cars, but the others are going to be worth very little.

But remember that people were scared by the prospect of owning an expensive EV. What if tesla fails, what if the batteries fail prematurely, etc. this reassured some segment of the market that they will be in the same situation as Mercedes S class owners.

tdiggity said:

But remember that people were scared by the prospect of owning an expensive EV. What if tesla fails, what if the batteries fail prematurely, etc. this reassured some segment of the market that they will be in the same situation as Mercedes S class owners.

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Assuming you "bought into" the program by paying the financing $600/year for service, which probably adds up to at least $5K.

Atebit said:

Assuming you "bought into" the program by paying the financing $600/year for service, which probably adds up to at least $5K.

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But even if you didn't, there will still be a kind of herd immunity.

tomp said:

i guess this is the part I'm missing. How, or why, exactly?

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The assumption is (and you know what ASSUME means!) that if there are 75% of the Telsa's sold were done with the guaranteed resale financing that even if the other 25% are not able to get the guaranteed buyback they will still have a similar value since they would be propped up by the value of the 75% that were guaranteed. In other words, if those 75% were all bought back at an average of 50% of the MSRP then even the cars that are not covered under that program are also going to have a similar resale value since a rising tide raises all ships. My problem with this assumption is that if for some reason, GOD FORBID, that Tesla went under, I don't see these 75% percent getting their guaranteed buyback from Elon. Is that because I do not trust Elon? Nope. It's because the majority of his wealth is tied to the stock value of Tesla. If Tesla is worthless, he, relatively speaking, has no money. He would not be destitute by any means, but he might not have the millions it would take to make the buy back happen. I love Tesla's products and respect Elon and his candor, but I think that some owners are living in la la land if they think they will be getting their money back no matter what. I am more of a realist and know that we all are taking risk with our hard earned money, but I believe in the product and the man's mission so I am willing to take that gamble.

tomp said:

i guess this is the part I'm missing. How, or why, exactly?

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Assuming that a substantial number of Teslas are sold on the plan, then those for sure won't sell for less. There will be another group where the owners are still keeping them, so they don't affect the price at all. That just leaves the ones being sold that aren't on the plan, which should be a small percentage of the total cars at any given time. So this reduces availability and keeps the price at the Mercedes S price--or whichever similar car is higher--Mercedes S was just used as an example. When the plan was announced some folks complained that other similar cars had less depreciation than a Mercedes S, so Elon altered the plan to match whichever car had the highest value at the time.

My thought is that because the Model S requires much less maintenance than an ICE, in the worst case the price won't drop like a DeLorean. I also suspect that many Model S purchasers will keep their cars longer then they kept their previous cars which will reduce the amount of used cars available at any given time.

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Shumdit said:

The assumption is (and you know what ASSUME means!) that if there are 75% of the Telsa's sold were done with the guaranteed resale financing that even if the other 25% are not able to get the guaranteed buyback they will still have a similar value since they would be propped up by the value of the 75% that were guaranteed. My problem with this assumption is that if for some reason, GOD FORBID, that Tesla went under, I don't see these 75% percent getting their guaranteed buyback from Elon. Is that because I do not trust Elon? Nope. It's because the majority of his wealth is tied to the stock value of Tesla. If Tesla is worthless, he, relatively speaking, has no money. He would not be destitute by any means, but he might not have the millions it would take to make the buy back happen. I love Tesla's products and respect Elon and his candor, but I think that some owners are living in la la land if they think they will be getting their money back no matter what. I am more of a realist and know that we all are taking risk with our hard earned money, but I believe in the product and the man's mission so I am willing to take that gamble.

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My expectation is that SpaceX will net him far more than Tesla Motors. I don't believe it will be a problem unless Tesla goes under in the next two years. I don't see how that could happen though.

jerry33 said:

Assuming that a substantial number of Teslas are sold on the plan, then those for sure won't sell for less. There will be another group where the owners are still keeping them, so they don't affect the price at all. That just leaves the ones being sold that aren't on the plan, which should be a small percentage of the total cars at any given time. So this reduces availability and keeps the price at the Mercedes S price--or whichever similar car is higher--Mercedes S was just used as an example. When the plan was announced some folks complained that other similar cars had less depreciation than a Mercedes S, so Elon altered the plan to match whichever car had the highest value at the time.

My thought is that because the Model S requires much less maintenance than an ICE, in the worst case the price won't drop like a DeLorean. I also suspect that many Model S purchasers will keep their cars longer then they kept their previous cars which will reduce the amount of used cars available at any given time.

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My expectation is that SpaceX will net him far more than Tesla Motors. I don't believe it will be a problem unless Tesla goes under in the next two years. I don't see how that could happen though.

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The issue is that foresight is far poorer than hindsight. There are millions of divorced people, millions of people who lost money in the stock market, etc. who all had faith from the perspective we have now, but found out afterwards that they had made an expensive/heartbreaking error. I never looked at the wording of this guarantee but does it state that Elon would liquidate his assets (i.e. stock holdings) to pay for this plan if Telsa Motors were unable to do so?

Atebit said:

Assuming you "bought into" the program by paying the financing $600/year for service, which probably adds up to at least $5K.

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Some math**:

Tesla financing (US Bank/Wells Fargo): For a $100K list price with 10% down and 72 month term @ 3.5%, the monthly payment is $1387.66. So, 36-39 months of payments = $49,955.76-$54,118.74

Alliant financing (one popular alternative to Tesla): Same conditions as above, except rate is 1.49% => monthly payment of $1307.48. 36-39 months of payments = $47,069.28-$50,991.72

Difference in payments ranges between $2,886.48-$3,127.02

The buyback price formula is 50% of the base price of a 60kWh + 43% of all other options and upgrades... so for a $100k new price, that's 0.50*$69,900 + 0.43*$30,100 = $47,893. The balance on the loan after 36 months is $47,356.90, so if you sell the car back to Tesla, you pay off your loan and have $536 left over. On the other hand, the remaining balance on the alternate loan @36 months is only ~$46,000 flat.

You are right, you've also got to stick to the annual service schedule (but odds are you probably do that anyway) and there is a $0.25/mi fee for miles over 15k/yr. 15k/yr seems like a decent allowance for most, but once you have an EV that can supercharge for free, you may want to drive more.

In the end, the premium of going with the Tesla financing will be about $3k (over the first 3 years), a bit more or less depending on your list price. Is it worth it? As peace of mind, maybe. If you plan to sell your car after 3 years, probably. Otherwise, you can save a bunch by going with the alternatives.

** I'm not factoring in tax credits because the amounts can vary from state to state, and the timing of when you receive them during your financing cycle also varies with when you buy the car and when you file taxes, and when you actually get the money back; and some may not want to throw all that rebate money back into the loan anyway

The number one factor that makes me believe in Tesla's resale value is how well the resale value of Fisker Karma's held up even after the parent company essentially disappeared on the owners and dealers.

gut feeling is that car's value will exceed Elon's buyback amount - and give Tesla a good opportunity to make additional profit on second sale of same vehicle

rjcbox said:

gut feeling is that car's value will exceed Elon's buyback amount - and give Tesla a good opportunity to make additional profit on second sale of same vehicle

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That is my hope as well, which is why I did not partake in the guaranteed buyback. My feeling is that short of Tesla going under we will be seeing resale values hold up over and above the cars that they are using as a benchmark.

rjcbox said:

gut feeling is that car's value will exceed Elon's buyback amount - and give Tesla a good opportunity to make additional profit on second sale of same vehicle

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But in that case, Tesla wouldn't make the profit the second time around. It's not a *mandatory* buy back. It's not a lease either. If the current market is above the guaranteed buy-back residual, people who want to sell would just sell on the open market. The only time Tesla would make a profit is if people want to just return the car like a lease vehicle (or trade it in on a new model), and they don't care about the current market value and/or don't want to sell it privately.

What's the guesstimate on how many people financed through Tesla with the buyback guarantee?

Shumdit said:

The issue is that foresight is far poorer than hindsight. There are millions of divorced people, millions of people who lost money in the stock market, etc. who all had faith from the perspective we have now, but found out afterwards that they had made an expensive/heartbreaking error. I never looked at the wording of this guarantee but does it state that Elon would liquidate his assets (i.e. stock holdings) to pay for this plan if Telsa Motors were unable to do so?

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I believe in Tesla's success. I also believe what Elon has said about the program.
1) Tesla is on the hook to buy back the car should you want to sell it in after the three year 'lease term' is up (if not, you just continue to pay off the car
2) If Tesla Motors Co is bankrupt and can't afford to buy all the cars, then Elon is personally on the hook for ALL his assets, not just Tesla Motors assets
3) Even if Elon dies, his estate is on the hook
4) Elon's buyback guarantee is for a minimum buy back price. He has said on conference calls that when the time comes for this program and people sell, he guarantees the minimum, but if the car is actually worth more than that, he will pay 'fair market value'

So, I guess the decision is do you believe in Tesla Motors success? Do you believe in Elon? and more practically, do you really think you're going to want to resell the car in three years?

My math came out similar to 772's. Except in my case I would forgo the financing altogether if given the option. So the financing "premium" is a little higher on my spreadsheet. Now if US Bank or Wells-Fargo was offering 1.49%, that might make it worthwhile to finance it. The best offer I've had so far is from WF for 60 months @ 2.24%.

IIRC when I read the buy-back agreement, I'm pretty sure Tesla Motors is listed on the agreement, not Elon. So while I don't doubt his intentions or integrity, I'm not sure what would happen to the enforceability if Tesla Motors ceased to exist.

rjcbox said:

gut feeling is that car's value will exceed Elon's buyback amount - and give Tesla a good opportunity to make additional profit on second sale of same vehicle

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My gut feels differently. The batteries have an estimated 8-10 year life span, are worth zero (or close to that with recyclables) at their death, and will cost ~$10K to replace.