CPO sales could prove value of factory-owned stores
Gabe Nelson
Automotive News
October 6, 2014 - 12:01 am ET
SAN FRANCISCO -- Elon Musk, in his quest to transform Tesla Motors from a scrappy electric-vehicle startup into a mature, profitable automaker, may have an ace up his sleeve: used cars.
Tesla is developing a program to sell the Model S secondhand, Automotive News has learned, in a bid to lower the cost of entry for the $71,070 sedan and unlock the earnings potential of Tesla's factory-owned retail network.
Tesla's vice president of communications, Simon Sproule, confirmed that the company is developing a certified pre-owned program to compete with those offered by luxury brands such as BMW and Mercedes-Benz. "With the Model S fleet now heading toward the first cars hitting three years old," he wrote in an email, "we are looking at CPO and how best to structure."
Tesla is racing against a clock that started ticking in April 2013, when Musk -- determined to reassure customers about buying an unproven electric car from a brand-new automaker -- personally guaranteed the resale value of the Model S.
If owners take up the offer, it would bring Tesla a steady stream of used Model S sedans starting in the spring of 2016, with many more to follow in 2017: Tesla, which has offered business leases since April, quietly started offering 36-month Model S leases to retail customers on Oct. 1, with offers starting at $5,000 down and $932 a month. The offer is available in 37 states.
In an email, Sproule wrote that the new lease offer, combined with traditional loans and the resale value guarantee, "completes a suite of products ... that covers a comprehensive range of financing needs for Model S customers."
Although records of private Model S sales are spotty, early signs indicate that the Model S sedans returning in 2016 will be worth more than what Tesla has promised to pay under the buyback program.
The influx of trade-ins could start even earlier, when the Model X crossover arrives next year, giving early buyers of the Model S a chance to choose something different from the Tesla stable.
Carmax Inc., the nation's largest used-car retailer, earned $2,220 per used vehicle in its fiscal first quarter ended May 31, an 11 percent margin. Krafcik, citing analysis by TrueCar affiliate ALG, said it is possible that Tesla will earn more profit on a second purchase than the first, making $6,000 to $10,000 for each used Model S that it sells
Tesla's trump card: Used cars