Short circuit: $500-a-month Tesla electric-car lease doesn’t add up
Tesla created much buzz this week by offering “lease” for the Model S luxury car with payments as low as $500. That sounds pretty tempting, especially for an electric car with expensive batteries that will wear over time. But Tesla CEO Elon Musk’s numbers just don’t add up.
Musk pitched the car as having a $500 lease payment. That sounds great—if only lease payments actually came as net costs. You see, Musk is subtracting the Model S’s savings in operating costs due to the low cost of running on electricity from the total lease payment. But potential lessors will still have to write a monthly check for $1,538.80 to lease a Model S like the one we’re testing.
To learn more about electric cars, visit our alternative-fuel car guide.
A calculator on Tesla’s website shows how Musk managed to cut the payment by two thirds. And here are the real details:
• The lease is actually calculated as a purchase on a 63-month loan from either Wells Fargo or US Bank, at an annualized interest rate of 2.95 percent.
• The purchase is calculated with a “down payment” equivalent to the state and local tax credits available to buyers in their location. In most places, this is limited to the federal $7,500 electric-vehicle tax credit. But it’s $10,000 in California and as much as $15,000 in West Virginia.
• With no depreciation history on a brand-new model from a brand new company, using new technology, Tesla itself guarantees the residual value after 36 months as equal to that of an “equivalent” Mercedes-Benz S-Class. Among other things, S-Class sedans are known for having steep depreciation.
Tesla’s calculator then begins subtracting owner costs such as gas, and factors such as time spent filling up, and time saved by using carpool lanes (estimated time value is $100 per hour), assuming they’re available in your area, from the advertised monthly lease payment. Unfortunately, we’re sure Wells Fargo and US bank won’t be so forgiving.
Still, offering a finance plan should make the impressive Model S available to more buyers. And having a guaranteed residual value strikes us as a good idea in an electric car, whose technology is bound to be surpassed by the next generation of EVs. Our long-time lease advice still holds true, however: caveat emptor! Leases make it hard to tell the true cost of a transaction. And this one makes it harder than most.