Tesla Motors just announced a “revolutionary new finance product” for new Tesla customers.
The press release and related website is riddled with mind-numbing numbers.
But the core concept of the new financing model is quite simple.
And it’s a win for the buyer.
Here is the detail from the press release:
After 36 months, you have the right, but not the obligation to sell your Model S to Tesla for the same residual value percentage as the iconic Mercedes S Class, one of the finest premium sedans in the world, made by Daimler (also a Tesla partner and investor).
In other words, you own the car, but you have the option to sell it back to Tesla. You’re basically getting the benefits of both leasing and owning a car.
Now, Tesla throws out a bunch of numbers to explain how much a Tesla buyer could potentially save. (Play around with that if you want.)
But the bottom line is that the new “financing product” creates asymmetric risk. In other words, the downside is lopsided toward one party.
And that party is Tesla.
In effect, Tesla is gambling that you’ll like the car so much that you’ll keep it.
However, they risk getting a load of used Teslas 36 months from now.
It’ll be the work of actuaries and Wall Street analysts to forecast how many of these cars will come back.
Heard Of This Before?
This actually isn’t a totally new idea. On Wall Street, this is called a put option. The holder of a put has “the right, but not the obligation” to sell back an asset at a certain price.
Of course, options aren’t free. Investors buy options for a premium.
With Tesla, any premium is likely to be priced into the car.