They're bundling an ordinary car loan with a put option, and Musk is personally guaranteeing the put.
Elon Musk is great. He's always all-in.
Elon Musk is great. He's always all-in.
Then to top it off, all with my money too boot! So for everyone who can afford a one thousand dollar monthly lease; before taxes; they get my help to pay for it.
Sorry, he is all in with our help. That isn't exactly courageous. He wants to capitalize on that tax credit before the money ends up elsewhere.
Look, I am all for having an electric car do well, but I would much rather finance the world of Leafs and similar affordable cars than a luxury vehicle to people who could make the payment regardless. People on sites like this bitch up a storm all the time about subsidies to various businesses but somehow this one gets a pass.
Nissan Leaf, average owner income: $125,000 http://www.greencarreports.com/news/1049202_just-who-is-a-ty...
Chevy Volt, average owner income: $175,000 http://autos.aol.com/article/why-the-chevy-volt-is-attractin...
From an environmental standpoint it's going to lead to a greater reduction in fossil fuel use in the aggregate, assuming it sees the same pattern of takeup as the Prius did.
Europe has much higher costs of gasoline than the USA. They still don't have roads full of electric cars.
yet. Government subsidizes 100% electrical cars heavily in the form of low / no road taxes or lease tax, and with a high amount of <100 km commuter traffic, electrical cars with their limited range make sense.
For example: Will you tax diesel as well? If not, then people will switch to that, with poor results for our air quality.
If yes, then suddenly every since thing you buy will be more expensive, since it's all shipped.
And those are just the first two things that popped into mind - there will be a LOT more consequences.
Also shipping is starting to switch to natural gas; you may think this a good or a bad thing, but a tax on diesel would increase that.
You can discriminate between uses in a way similar to this: http://en.wikipedia.org/wiki/Red_diesel#reddiesel
To that end, even though the current state of Tesla and Model S may not be picture perfect, its success is certainly more desirable than its failure, particularly given that both its Nissan and GM counterparts have basically flopped in people's minds.
Here Elon speaks at TED. Somewhere in the talk he explains the reasoning behind the more expensive vehicles at this moment. (spoiler: He plans on getting less expensive, less elegant versions on the market, with the help of these more expensive versions.)
Not only is this story a great business and strategic move, it has an added bonus of marketing/PR/goodwill + hiring benefits.
There's probably a lot we can all learn from the kind of decisions/announcements that are continuously being made from Elon Musk and Tesla.
On the minus side, the initial values in the calculator are heavily shaded towards Tesla. Who spends 15 minutes at a gas stop? Using the average cost for electricity instead of the marginal cost?
Try making the cost of gas low, and electricity high, and the "savings per month" simply drops to 0 and stays there, instead of wrapping around and becoming a cost.
Yeah it's an estimate, but it doesn't cover any of the basic possibilities.
The fact that they shaded the initial number in order to close the sale is deceiving, and honestly, surprising from a company I previously held in high esteem.
It's not that this practice is uncommon, it's that I wouldn't expect it from Tesla.
* Going from the $10k CA incentive to the $7.5k other states one changes the monthly from -80 to -11? Is the incentive sunsetting or something?
* The default settings assume you are using it for business and can deduct the cost. Just unchecking that makes it significantly more $$$.
* The gas savings assumes your gas car gets only 19 mpg and requires $5 gas.
Having a $222 business tax discount selected by default seems questionable to me though.
It is really interesting to see balloon/option loans coming back, but for a different reason.
As far as I know, no bank does leases and only the captives do them. In this case, you owe wells fargo for the full amount of the loan, but Tesla and Musk are personally guaranteeing to buy the car back. A clever way to create a lease product backed by a company that won't do leases.
But this article is really light on details:
1) Is put option available without the loan?
2) Is it available for longer than 36-month period?
If I decide to buy Tesla, it's unlikely I'm going to be replacing it in 3 years, more like 6-8 years. And I think that there is a good change that in 6 years resale value will be 0 - with more advanced battery tech available and with cheaper models around, and with old battery Model S may turn out to have no value in 6 years. So this kinda stops me from considering it.
They did bet that resale value will be higher than certain amount. Moreover, if it's higher, than what stops you from selling yourself and just returning the loan? I.e. it seems that they are not going to benefit from upside, but will suffer from downside - if resale value is lower, all people having this option will execute it.
On other hand if enough buyers will buy this option, this will effectively set the market price of the used car (as lease does for 3yo BMWs, for example).
Anyway, it seems they punish current cash buyers if this option is not available for them.
I do not consider significant reliance on the state for funding the mark of a great entrepreneur. Musk has a bold vision, and the tenacity to execute on it, and that is commendable. But not without significant aid.
I think maybe your bar is set too high.
Our government distributes enough risk to me already, while letting the pseudo entrepreneurs keep all the upside. That's the reason all those credit default swaps made by Goldman Sachs and others were paid for by the taxpayer.
"48 companies that have received more than $100 million in state grants since 2007." http://www.nytimes.com/interactive/2012/12/01/us/government-...
In U.S. budget-ese, you describe costs over a 10 year span, so that's a "$5 trillon tax hike".
The point being that the EV subsidy is small potatoes. I still think it's a bad idea. Tax the gas. Let producers and consumers figure out how to use less, and let governments figure out how to compensate for the regressiveness of the tax.
EDIT: Also, you can't just give it all back. As long as emissions continue at something near current levels, you have to spend it on amelioration. It doesn't just become a slush fund.
Transporting stuff doesn't need to use all that much oil. Neither does growing.
The very worst case, of course, is any who find themselves paying higher prices but unable for whatever reason to access the stipend.
I'd say as much of it as we can, equally per-capita.
> Some poor people drive a lot.
And either they will change their behavior, or be hurt less than if we didn't give the money back. As people generally change their behavior they will likely have more options, as demand rises for alternative modes of transportation (and for goods and services that involve burning less gas) leading to greater economies of scale.
> Some poor people don't drive at all.
But they still buy goods that were shipped by burning gas. Even so, they'll benefit more than others, but I don't think that's a problem.
> Also, you can't just give it all back. As long as emissions continue at something near current levels, you have to spend it on amelioration. It doesn't just become a slush fund.
We can certainly talk about taking a piece for amelioration, but I don't think paying that out of the general fund is unrealistic; it's what we'd be doing otherwise, and it'll be way cheaper if people have adjusted their behavior to reflect the true costs of their actions.
Governments are the source of all wealth.
Subsidies, tax breaks, issuing debts, give aways (pork), purchases, loans, war profiteering, patents, etc.
Everything.
Government even protects people's property rights.
Without governments, there is no wealth.
Personally, I'm quite proud that the US Govt is funding alternate energy, electric transportation, and space exploration. Many of the past investments have worked out quite well. I'm bullish about these investments too.
I have to disagree on that. Governments are the arbiter of most wealth, via taxation, subsidies, spending, the court system, etc. "Wealth" comes from production, transformation, and trade. I've taken a tree and nurtured it so that it produces fruit. The world is now one fruit-producing tree wealthier. I trade fruit with my neighbor for wool, because I value some quantity of wool higher than I value some quantity of fruit, and my neighbor values the fruit more than the wool. We are now each wealthier for trading something we have in excess for something we do not have.
The government then takes some of my fruit to feed the soldiers defending my land. Government's role in the economy is mandatory trade for the benefit of the society as a whole. I must provide fruit to the soldiers whether I want to or not. Sometimes there is a net gain through these trades (see space exploration, for example). Other times the gain from this trade is disputed (see California's high speed rail project).
Tesla is a recipient of government subsidy, but you pretty much have to operate in the auto market. Everybody else (big auto companies, big oil) are the recipients of massive subsidies too.
So if Tesla fails, then the "personal guarantee" simply turns into SpaceX shares. And SpaceX is a pre-IPO company.
The banks are providing: 1) cash 2) loan origination and servicing.
Tesla doesn't have a cool $1B in cash laying around to make 15,000 car loans. The banks do as they lend from customer deposits. Tesla needs the cash immediately to buy more parts / pay employees.
Also, Tesla doesn't have a team of people that know how to review and check credit. Nor do they have call centers to remind people to make their payments, and if they can't arrange a repossession.
>Tesla doesn't have a cool $1B in cash laying around to make 15,000 car loans.
Tesla doesn't need the cash in reserve to make loans to buy Tesla cars; such a "loan" in that case would simply mean "not requiring (immediate) payment". It certainly means forgoing some liquidity, but that's not the same as them having to come up with the purchase price for all their cars; they're paying themselves anyway.
That is a powerful privilege and the reason why it is smart to partner with a bank, even if you have money to spare.
No. Only central banks can create money by printing it.
An ordinary bank (commercial, S&L, or credit union) cannot loan out more money than they take in. That's why it's called "fractional reserve" banking -- i.e., a "fraction" of deposits is not loaned out, but is instead held in reserve.
The 10-fold expansion of the money supply is caused by the multiplier effect, not by banks printing money. The only way to avoid that is for the bank to make no loans at all. Any fraction -- whether 1/10 or 9/10 -- will still lead to a multiplier effect. It's just a matter of how large you want the multiple to be.