Tesla Kills the $50,000 Model S; New Lease/Buy Program (Theoretically) Makes $500/Month Possible

Tesla Model S

On Tuesday, Tesla Motors announced the introduction of a new hybrid buy/lease program to bring more buyers to their sole car, the Model S, one day after it declared the termination of the entry level version of that car. The 40 kWh Model S was the least expensive engine combination for the model S, at just over $50,000; at $62,400, the midrange 60 kWh will now be the base option, while the more powerful 85 kWh rings in at $72,400 or $87,400 with the Performance option (all figures are listed after a $7,500 federal tax credit).

The jettison of the low performance Model S set off warning bells over at Jalopnik, and rightly so. Much of the company’s early buzz was generated due in no small part to the promise of a sub-$50k electric vehicle, and now that the Model S is on everyone’s lips, Tesla is quietly shuttering an option it says only accounted for 4 percent of preorders. Tesla didn’t push the most economical Model S too heavily, of course. Deliveries of cars with the most potent battery packs began late last year, while the 60 kWh cars started making their way into showrooms in February. The base model was set to be sent out this summer, but with Tesla taking the car off the line early, those who ordered the most modest S will instead receive a detuned 60 kWh unit instead, with an additional fee to take off the inhibiting software. To my knowledge, no publications have ever reviewed the 40 kWh car, instead only testing the volume and high performance versions, and it isn’t even rated by the EPA. The base may not have gotten many preorders, but Tesla didn’t give it much of a chance, either.

To its credit, Tesla will include a free Supercharger for both versions of the 60 kWh engine, which was supposed to be a $2,000 option on the midrange S. The Supercharger package gives owners all hardware and software necessary to utilize Tesla’s growing number of Supercharger stations. Those stations promise to recharge half of the Tesla’s battery in half an hour, and the power is always gratis. Buyers of the original 40 kWh pack that are now receiving the neutered 60 kWh will actually enjoy the horsepower bump of the new pack, although range is artificially limited.

Tesla Model S Int

The same day, Tesla announced that sales of the Model S to date have been higher than originally forecasted, making the company profitable for the first time (Tesla calls itself “fully profitable,” a distinction that I am not currently familiar with, but investors seem to like enough to increase the share price about 11% in a single day). Strangely, Tesla has not yet given an exact figure to display the magnitude of that profitability.

In the wake of killing the low-cost Model S, Tesla detailed plans of a hybrid lease/purchase program to get more people into the 60 kWh sedan. Tesla claims that the Model S can be had for as little as $500/month, but to get that number requires more creative finance wizardry than most Wall Street bankers can muster.[Warning: Extremely boring but important math ahead. Read ahead at your own peril!]

First off, that number is an “effective rate,” with a real rate of $1,051 per month, which is itself based on several assumptions. Negotiations with Wells Fargo and US Bank have enabled a funky finance deal that basically calls for a 10% down payment (paid for by federal and state electric vehicle incentives), a 66-month lease, and a 2.95% APR. If you live in Colorado or West Virginia, you’re sitting even prettier, as those states receive a credit worth $13,500 and $15,000, respectively. Oh yeah, and you pretty much have to be a business owner and use the Model S for your business, or you are not coming anywhere close to that $500 mark. You also may have to value your time at $100 to hit that target number, and calculate how much time you would now save by not going to the gas station (but please disregard the 30 min Supercharger filling times!). To see the incredible way Tesla comes up with the magic $500/month figure, click here to go to the calculator.

The hybrid buy/lease program comes into effect at month 36 of the lease, where Tesla will buy your car back from you at the same residual value percentage as a Mercedes S Class, if you so choose. Tesla’s True Cost of Ownership is based on driving 15,000 miles per year, so using Kelley Blue Book’s estimates of car worth and standard options, a 2010 Mercedes S550 (at private party value in excellent condition) is worth $49,000. The car originally cost somewhere around $95,000 with no options to begin with, so we have a depreciation of 48%. A Mercedes S Class is a great car to benchmark a prospective luxury sedan, but not in terms of residual value. That means that Model S will be bought back by Tesla to the tune of $32,000 to $44,000, depending on spec.

The $500/month claim is not realistic for the overwhelming majority of prospective Model S owners, it is a marketing ploy easily made transparent with the slightest bit of research done by the consumer. Go ahead and search Google for “tesla model s 500”. Nobody is buying Tesla’s claims, but don’t let that stop you from looking at a Model S. Marketing crap aside, the car really is the first EV priced correctly compared to the other cars in the midsize sports sedan segment. With the 85 kWh battery pack, range anxiety is drastically reduced, especially in heavily populated areas. With prices starting in the $60s, the Model S isn’t inexpensive and nobody knows what the resale value is like, but it is an interesting alternative for those tired of the same old E-Class, 5 Series, and A6. Just don’t be fooled by the convoluted pricing scheme.

Photos courtesy of Tesla Motors

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About Cameron Rogers

Cameron Rogers is the founder and lead writer at Downshift Autos, the only automotive blog on the Internet*. Born in the back of an AMC Gremlin, Cameron vowed to never let this extraordinarily embarrassing detail define him, so help him God. He drives a GTI but absolutely will not shut up about it if somebody asks. He will not hesitate to let people know that no, they shouldn't get a Porsche 911 when a Morgan 3 Wheeler is so obviously the superior choice. He is obsessed with the seats of a Carrera GT and the steering wheel of a Fisker Karma. He once sat in the driver's seat of a Tesla Model S, his greatest accomplishment to date. He is just now realizing that writing an autobiography, however miniscule, in the third person is odd and unnerving. *As of this writing, Cameron has been informed that there are, in fact, many websites and blogs centered around cars and car culture. He regrets his grievous error.

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