Tesla Model 3 Employee Leasing Coming Soon, General Public Later

FEB 20 2019 BY STEVEN LOVEDAY 32

Soon we may know if offering Tesla Model 3 leasing will spike demand.

Tesla is well aware that people are eagerly awaiting a time when they can lease the Model 3. Many people have wondered why Tesla has waited to take advantage of this potential boost. Some have speculated that once the popular all-electric sedan is available for lease, demand will go through the roof.

We are not financial gurus at InsideEVs, but we can tell you that Tesla has waited because, while leasing will spike demand and “sales,” it’s not as pretty as actual sales on the automaker’s balance sheet. Musk spoke to this in the recent Q4 earnings call. He admitted that leasing is something that will boost demand, but it “makes our financials look worse.”

According to Electrek, “sources familiar with the matter” reported on an email about Model 3 leasing that was recently sent to Tesla employees. It said that Tesla employees may be allowed to lease the Model 3 in about two weeks. Does this mean only employees will be able to lease the Model 3 or will it be opened up to the masses?

The story goes on to say that Tesla did confirm that the email was real. However, the automaker was clear that the email was simply an internal document to prepare employees. The automaker also made it clear that there has been no official decision about when leasing may start, except that it will begin sometime after the timeframe suggested in the letter. So, basically, employees may be able to lease soon, but the general public will have to wait an undisclosed amount to time before leasing is available. Tesla’s official statement as reported by Electrek reads:

This is simply an internal document to ensure teams are prepared for when we eventually introduce a leasing option to customers. No decision has been made about when Model 3 leasing will be available, but it will definitely be after the dates outlined in this document.

Source: Electrek

Categories: Tesla

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32 Comments on "Tesla Model 3 Employee Leasing Coming Soon, General Public Later"

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Another Euro point of view

I do not understand why a car manufacturer needs to be involved with leasing offers. Typically (in Europe at least) if you want to lease a car, any car, you just go to a show room, make your choice, contact a leasing company that will buy the car and lease it to you. Maybe a car manufacturer can offer slightly better leasing deals than a specialized leasing company ? As I understood it it is not an ideal situation for a car manufacturer as in case of a leasing, the income is spread over many years as opposed to a normal sale where income (and possibly profit margin if there is one) is recognized on the day of the sale

Perhaps it’s all down to vertical integration. If you involve another company, it’s just another party that wants a piece of the profit pie. That’s just my guess though…

Currently, Tesla can’t take the Federal Tax Credit since they’ll have a $0 Federal Tax liability, and therefore can’t use the FTC to pass it through to the buyer by reducing the Cap Cost of the leased vehicle. It doesn’t matter that Tesla is now making a small profit, because the huge Net Operating Loses Tesla reported in the prior three years would be carried forward to offset any Federal tax liability for the 2019 tax year. Thus, Tesla must involve another company that has a Federal tax liability to lease the Model 3 and pass along the FTC savings to their customers, just as they currently do with the Model S and Model X.

Impartial – Tesla brought “tax equity” investors into at least one auto leasing subsidiary. That taxpaying investor would take the tax credit to offset their taxable income. SCTY and other solar leasing companies used this technique extensively.

So, Tesla will start leases when the Fed Tax Credit is gone. Got it.

As I understand it, the post-lease value of the car needs to be somewhat established before any leases can be established on remotely favorable terms. With new models from small manufacturers this isn’t easy to establish. One can get a bank to offer you a lease, but on these models it won’t be any good.

Lots of EVs in the US effectively have this problem – the Honda Clarity PHEV was $800/month to lease (ludicrous) at the outset, the Jaguar I-Pace has no useful lease offers, and so forth.

Interestingly, Fisker rehash Karma offers a lease on its super-low-volume car, probably based on the resale values of the original Fisker Karmas.

Another Euro point of view

Indeed, this makes sense. Thank you for explanation.

I think you are mixing things here. Honda has its own financing so the Clarity was always under their wing. The initial leases were high because of dealer markup on msrp and Honda not passing the fed credit to customers. The RV of the car did not change that much.

Because they can make more money on the car as reseller and if the person defaults on the loan they get car again in both situations and resells it until the car is paid in full and then it might be used as a trade in and get sold again. A car can bring in up $2 million dollars if people don’t do payments or defaults on a loan. John Oliver has a piece about use car schemes and loans

That exact scenario can and does happen in the US too. But that requires the lease to be reflective of the actual risks and profits involved. In the US it is common for the lease to be one or more versions of a scam and often is called ‘fleecing’ instead of leasing. So if the leasing company is a subsidiary or otherwise controlled by the manufacturer, the lease prices can be fabricated in a way to kick the can down the road. A prime example of this is the version 1 of the Nissan leaf as well as all other ‘compliance’ EVs. They were all leased at a giant loss which is why commentators here used to talk about (and still do to some extent) waiting for great leases. You’d see Fiat 500e for $99 per month and nothing down or some such crazy thing. That price is a fabrication two ways. 1. The fake retail price was admittedly a huge loss per unit as stated publicly by the CEO. 2. Even that price then involved fake price number 2 which was the supposed resale value which without evidence of actual resale performance was completely made up and made up… Read more »
Another Euro point of view

Yes, thanks for info, I also thought those Fiat 500e lease rates not to be “arm’s lenght” at all.

Can’t see this happening for a while to the general public, assuming it costs them circa $30k to produce one, they would need a serious cash buffer to tide them over until they recoup that amount back on the balance sheet. Hope they can manage it soon though.

When it comes to the general public, they’ll likely limit it at first to the top spec variants with the highest margin. That will limit the leases to manageable numbers.

Also, they can sell lease bonds, which allows them to convert a tranche of their regular lease income into hard cash. They’ve done that in the past, including once fairly recently (December, I think?).

Hector – when Tesla leases a car they borrow against one of their two “Warehouse lines”. They later pool a bunch of leases together and do a securitization. They use proceeds from selling the securitization bonds to pay off the Warehouse line, which opens up room for them to go lease more cars.

As lease payments come in they are applied to pay down the Warehouse line or securitization bonds, as the case may be. Tesla eventually gets some of those lease payments themselves, but not much because they already got most of their cash upfront.

Tesla can’t borrow as much as they’d get by selling the car outright, but they generally borrow more than enough to cover the cost of making the car. So it’s a cash flow positive operation for them.

Interesting… It seems like keeping the financial LLC at arm’s length would allow more defensible accounting “flexibility” but the way they are rolling leases into securitization bonds to offset warehouse lines of credit (paraphrasing comments above) it makes a lot more sense in GAAP terms to roll it all into the same bottom line… but that does bring us back to my too vertically integrated concern… If that is the way they are playing it, we may never see the awesome lease deals like some other EVs are getting. Very useful info if you like to understand how this stuff works. Thanks!

Seriously? Practically every other auto manufacturer has figured out how to set up a separate business entity to write leases and get inventory off the books of the publicly traded main company. You can probably set one up on Legalzoom for like $99. You could call it “Tesla Financial Services” and run a separate business and probably even a profitable balance sheet. Practically all OEMs do this, if I understand it correctly (ex: Toyota Financial Services). Statements like this from Tesla seem either blatantly disingenuous or stupid and I don’t think someone who worked directly with the financial sector (Paypal) can be that financially stupid.

I’m sold. Make Aaron385 the new Tesla CEO! /s

I do see the flaw in my initial logic. A company actually has to make a net profit to be able to pass-through the Federal Tax Rebate in the USA. At this point it will likely take Tesla many profitable quarters to get there. Federal rebates run out at the end of one year past the 200k mark so that isn’t too far off.

Tesla Financial already exists. Some of their leasing subsidiaries even have outside equity investors. But GAAP requires it all be consolidated onto Tesla’s books. Same with F, GM, etc.

Gotcha, I found “Tesla Finance LLC” but it is weird to me how they seem to be handling GAAP. Why spin off an LLC without you know… limiting liability? A bank/finance company basically obtains fiat money out of thin air (adds negative to ledger) and then loans it to people to buy stuff. People pay back principle + interest and the bank profits from the interest, principle comes off the banks balance sheet. So maybe they are a little too vertically integrated? I’m not a CPA but I worked for one once… genuinely curious.

Legal liability is limited, but GAAP attempts to accurately display the economics. And barring a total collapse of the leasing subsidiary, the economics are the same as if the parent company did the leases themselves.

It’s easy to commit accounting fraud if you don’t consolidate subsidiaries or other non-arm’s length corporations. That was Enron’s game.

And the only banks that create fiat money out of thin air are the Federal Reserve Banks. Regular banks must attract deposits and/or equity capital before they can lend.

How many Tesla employees will take the Model 3 leasing route, to get behind the wheel of one of the most compelling EVs produced to date?

Special Employee discount (w / 720+ CS) :
$299.oo /month, with $2,500.oo D@LS for typical 3 yr / 36k mi. deal.
(Take delivery before 6/1/2019)

Where do you see this? And since Tesla doesn’t have discount for anyone, that’ll also be the term when available for general public?

Hypothetical “discount” lease terms (YTBD) for a fictitious Special Tesla Employee, with a good credit score.

Special Employee Discount is a GM Bolt sales tactic, that Tesla could temporarily “borrow”, EVen though that would not be in the usual Tesla play book.

Very hypothetical.

Or completely unlikely. Tesla don’t play that.

We knew this was going to happen as it appears demand has peaked for the higher priced models…I expect this to be live for everyone in Q2…Good move, next up may be the de-bundling of the force PUP…

A gift to Tesla employees. They deserve it. As far as public leasing coming soon goes, probably around the same time the 35k Model 3 comes out.

Actually, it’s quite possible they won’t allow the $35K version to be leased; only the higher trims…

Why not spin up a financial services arm like GMF if you’re afraid of messing up your books.

They have a financial services arm. It’s consolidated on their GAAP books. Same as GM, F, etc.

Wow. What a bunch of endless whining in the comments section over Tesla offering customers more options!