Tesla’s Financing: Genius Marketing or Product Devaluation?

Blog, business, marketing strategy

A little over a week ago, Tesla Motors CEO, Elon Musk announced a new kind of financing option for people who have been wanting to purchase Tesla’s all-electric luxury car, the Model S. In the announcement, it was revealed that Tesla had partnered with both US Bank and Wells Fargo to provide financing that would bring down the net monthly payment on a Model S to about $500. This news has been met with both praise and criticism on many fronts.

In a television interview with Bloomberg, Musk stated the overall goal of this move was to broaden the marketplace for the Model S, and subsequently, other Tesla cars in the future. No one can blame the young CEO for wanting to sell more cars, and increase the market share for all-electric vehicles, but is Tesla also devaluing the centerpiece of its product line?

When you look at a Tesla Model S, it’s clear the vehicle was designed to be a high-end luxury car. The design borrows aspects of other luxury makers Mercedes and Aston Martin, while the price—starting at $62,400 after a $7,500 federal tax credit (higher in some states) for their base model—definitely would scare off the middle-class buyer looking for a commuter car.

At the purported $500 a month, these new “net” payments land the Model S in the affordability range of those who purchase other mid-sized sedans like the Nissan Altima or Toyota Camry. However, you have to know that your payment for a Model S will not really be at $500 a month. This figure is calculated by Tesla as a “net” payment you’d make after accounting for gasoline, time, and other savings. Tesla has even loaded a nifty little calculator to their website that lets you find out how much your net monthly payment would be, based on how you value your time.

That’s where the criticism comes in. This calculation of savings includes some benefits that other car makers don’t use, like a business tax benefit, which would only apply if you used your car for work. I calculated my own monthly payment for the base model, and my actual monthly payment came to $1,097, with a savings of $399 a month, my “effective monthly cost” equaled $698. This payment is still too rich for my blood, but it’s not too far off what some people pay for their cars today.

So if you can afford what is agreed to be a luxury car at the same price as a fully-loaded Camry, does that deface the luxury reputation of Tesla? It’s no secret that Elon Musk wants to increase the number of zero emission cars on the road, for both his company’s benefit and the environment’s. Perhaps this move is a first step in what will eventually be the release of a lower-cost all-electric Tesla that will directly compete again Toyota, Ford, Nissan, and other companies in the extremely crowded mid-sized sedan market.

For this writer, Tesla’s new financing only brings the prospect of owning an all-electric, luxury vehicle closer, but still too far away to actualize. So for now, we’ll just watch how things unfold for Elon Musk, and Tesla. There are a lot of people betting on Tesla’s failure, but I’ve got a feeling the electric car might be here to stay.