*from www.bloomberg.com, April 2, 2013 (To view original article click here.)
Take Away #1: Tesla Motors Inc. declined after analysts questioned whether a new lease-style financing offer will boost demand for the company’s Model S.
Key Facts and Figures:
- Tesla fell 8% to $40.79 at 1:48 p.m. in New York.
- Shares closed at a record $44.34 yesterday, pushing the stocks gain to 31% for the year and topping a 10% rise in the Russell 1000 Index.
- The Model S financing deal offered by Wells Fargo & Co. and U.S. Bancorp, provides qualified customers with 10% of the purchase price and guarantees a minimum resale value after three years.
- “We do not think the new financing arrangement lived up to the hype – and related stock move – heading into the announcement,” wrote Ben Schuman, analyst for Pacific Crest Securities.
Take Away #2: The company “liberally employs” assumptions to estimate that the monthly payments under the offer are as low as $500.
Key Facts and Figures:
- Early analysis suggests the program is likely incrementally positive, but may not prove a game-changer in terms of demand, says Ryan Brinkman of JPMorgan.
- Tesla assumes prospective customers are “living in the states with the most subsidies and qualifying for business tax deduction”, among other assumptions, wrote Brinkman.
- Tesla estimates that the “true net out of pocket cost” for a mid-range Model S would drop to less than $500 per month.
- That estimate counts saving relative to owning a gasoline vehicle and also assigned monetary value to time saved by a solo driver taking advantage of carpool lanes, among other considerations.
- The company’s monthly payment offer is “substantially closer to that of a conventional loan” than the “teaser” rate given by the company, he said.
Take Away #3: Tesla Motors Inc. CEO Elon Musk is counting on the Model S to expand the buyer base for electric cars that are still more expensive than those with conventional gasoline engines.
Key Facts and Figures:
- Tesla said this week that higher-than-forecast demand for Model S drove its first quarterly profit in this year’s first three months.
- Musk had teased the financing plan last week in a post on twitter.
- The Model S has a base price of $69,900 before the federal tax credit.
- Musk says the program makes the Model S “affordable to a much broader audience than people think is usually the case.”
- High-end versions of the Model S sell for more than $100,000, including a larger battery pack.
Take Away #4: The financing plan is essentially a five-year loan with a 2.95% interest rate, which after three years customers have the option to resell their car to Tesla.
Key Facts and Figures:
- The loan is for 63 months, rather than a 66-month term initially posted on Tesla’s website.
- The company will buy the car back at a guaranteed residual price pegged to Daimler AG’s Mercedes-Benz S-Class sedan, said Musk.
- Daimler is a Tesla stockholder.
- While Tesla has characterized the financing program as ‘revolutionary’ it is similar to a car loan with a buyback option, wrote Elaine Kwei, analyst at Jeffries Group.
Take Away #5: Tesla’s $500 payment estimate was described as “dubiously calculated” by Mashable.com and called “bizarre” by Wired.com.
Key Facts and Figures:
- Just factoring in stuff that’s true out of pocket, you can buy the 60-kilowatt Model S for $400 or $500 a month, net cash out of pocket, said Musk.
- However, the amount excluding those items is at least twice as much, Tesla’s website shows.
- Excluding savings on fuel, a business tax benefit cited by the company, and time, a customer using the program has a monthly payment of $1,051 for the Model S, using a cost-calculator on Tesla’s website.
- That rises to $1,199 for an 85-kilowatt hour version or $1,421 for the 85-kilowatt-hour performance car.
Take Away #6: Musk said he is “personally standing behind” the residual value offer “even if Tesla is unable to”.
Key Facts and Figures:
- Under the program Tesla offers the option to buy back the Model S at the guaranteed price matching the residual value of a Mercedes S-Class sedan.
- Kelly Blue Book estimates that the residual on a 2013 Mercedes S550 sedan is 47% of its $95,905 list price.
- Musk has a current estimated net worth of $2.9 billion according to the Bloomberg Billionaires Index.
- “That’s what I mean by putting my money where my mouth is”, Musk said.
- The timing of the announcement may “hint at a slowdown in new orders or uptick in cancellations,” JPMorgan’s Brinkman said.
- Musk declined to discuss those topics during the conference call.
Take Away #7: The company reached “full profitability” during the first quarter as a result of higher-than-forecast sales of the Model S sedans.
Key Facts and Figures:
- Tesla said this week that during the first quarter it sold at least 250 more of the battery-powered Model S sedans than the 4,500 it had forecast in February.
- Tesla last month renegotiated repayment of $465 million of loans with the U.S. Energy Department to return money five years ahead of schedule.
- Doing so generated a one-time benefit in the first quarter worth about $10 million, said company spokesperson Jeff Evanson.
- That benefit and the Model S sales have boosted the company’s outlook, said Evanson.
*To view original article from www.bloomberg.com click here.