Marco.org

Tesla announced a “new finance product” that’s an interesting hybrid of buying and leasing. Supposedly, you buy the car with favorable financing terms, but with a minimal down payment (after tax subsidies) and a buyback option at a fixed residual after 36 months. It sounds like the tax benefits and flexibility of owning, but the predetermined resale benefit of a lease.

I wish Tesla would stop playing fast and loose with the numbers, though:

When considering the savings from using electricity instead of gasoline, depreciation benefits and other factors, the true net out of pocket cost to own a mid-range Model S drops to less than $500 per month.

What does “true net out of pocket cost” mean?

The middle Model S, by Tesla’s own calculator, will require you to pay at least $7,990 as a down payment — probably more — before you get any tax credits.¹ Even ignoring the significant up-front costs, their calculator is quoting a $711/month “total cost of ownership”, which is actually a $1,252/month car payment on a 5-year loan.

That’s pretty far from “less than $500 per month”, so let’s give them the benefit of the doubt and assume that by “mid-range Model S”, they really meant “the cheapest Model S with zero options”. That brings the actual payment to $1,097/month (again, hand-waving away the substantial up-front costs), or a $471/month “effective cost”. This is probably the figure that Tesla based this claim on.

But that price is also based on a number of extremely optimistic assumptions:

• You use the car for business 100% of the time by the IRS’ definition and deduct it from your taxable income to net a $222-month tax reduction. Without this, the “effective cost” rises to $693/month. This, by far, is the worst default assumption in Tesla’s calculator.
• You live in California. If you live in Colorado, Illinois, Georgia, or West Virginia, you’ll pay a bit less. If you live in any other state, increase that “effective” price by $69/month.

• You drive 15,000 miles per year and you’d otherwise pay an average of $5 per gallon of gasoline over the next few years and your car in this alternative scenario would require premium gas and average only 19 miles per gallon, netting you a $284/month effective savings after average electricity costs to replace the fuel.

  But a $5-per-gallon average over just 3 years seems shaky at best, many luxury sedans get much better gas mileage than 19 MPG (and some don’t require premium gas), and the average U.S. driver drives about 13,476 miles per year. If you drove the average number of miles and would have otherwise bought a BMW 528i (the 5-series was the best-selling premium sedan of its size class in the U.S. in 2012) and averaged $4.50 per gallon over 3 years, for instance, this $284/month savings would be reduced to $140/month or less.

So if you live in most states, don’t deduct your vehicle as a business expense (most people’s vehicles don’t qualify), and would otherwise buy a 5-series, your “effective cost” by Tesla’s calculator rises to a minimum of $906/month — and that’s for their cheapest model with no options, assuming that a surprise rich benefactor comes out of the woodwork to pay all of your sales tax and the remaining up-front costs after tax credits.

Tossing around that “less than $500 per month” figure to the press and the public is dishonest at best.