Tesla: Don't Faint At The Model 3 Payment

| About: Tesla Motors (TSLA)


Teslanomics has created a great tool.

Buyer's are going to be shocked at the payments.

This is NOT a mass market car.

If you do a Google search for "what is a mass market car?" the first 10 articles are Model 3 articles. Everyone in the press has picked up Elon Musk's claim that a $35,000 base priced Model 3 is a mass market car. In past articles, I have claimed otherwise. Well, now I can prove I was right, that Model 3 payments will be sky high once you factor in minimal amounts for insurance and home charging.

For more than a year now Tesla (TSLA) has been bragging about the huge number of refundable reservations they have for the new Model 3 mid-size sedan. They believe this car will take the mass market by storm propelling Battery Electric Vehicles (BEVs) into the American mainstream in 2018. It has been my belief that those reported 63,000 cancellations (as of July 30) will double or triple as more people realize the high cost of this car viewed on a monthly payment basis because the mass market car buyer is a payment buyer.

As an active investor, I do a lot of morning reading and tend to visit at least a dozen websites before the market opens. Today I dropped into Teslarati.com and came across a really nifty Model 3 payment calculator. It even has a short video explaining each step of the process to help in determining your total cost of ownership on a monthly basis. I hope every reservation holder gets to try it out. With no lease program, the Model 3 is going to run the average buyer about $700 to $1,000 per month or more. For most people in the "mass market" that is about the payment on their mortgage. I spent about a half hour building a little comparative table and the results are pretty shocking.

The top unit is as cheap a Model 3 as anyone can build with the standard range battery pack. No option costs of any kind. The middle unit has just a premium package addition. The bottom unit is loaded up with all options except the long range battery pack. The MSRP for each variant is on the left.

MSRP Prem Pkg EA? FSD? Wheels Color? Int % Term Down Payment
$35,000 No No No Std Black 2.74 72 $2,500 $698.20*
$40,000 Yes No No Std Black 2.74 72 $2,500 $778.72*
$50,500 Yes Yes Yes Sport Silver 2.74 72 $2,500 $947.80*

But wait, you decide that you really want some extra range so what happens if we go for the larger battery pack? Here are the results for the same configurations listed above.

MSRP Prem Pkg EA? FSD? Wheels Color Int% Term Down Payment
$44,000 No No No Std Blk 2.74 72 $2,500 $843.13*
$49,000 Yes No No Srd Blk 2.74 72 $2,500 $923.64*
$59,500 Yes Yes Yes Sport Slv 2.74 72 $2,500 $1,092.72*

* in the above and below calculations the following conditions apply: 1) Sales tax at 7% 2) Insurance cost of $120/mo 3) Daily commute distance of 40 miles roundtrip and 4) Price per kWh of $.12 for charging.

Then you call your bank or local credit union such as Vystar and learn that the lowest rate they have is 2.74 for 72 months. You can get a slightly lower 2.54% rate for 60-month loans. Here is how the rates affect both the standard and long range models for the different terms.

MSRP Prem Pkg EA? FSD? Wheels Color Int% Term Down Payment
$35,000 No No No Std Black 2.74 72 $2,500 $698.20
$35,000 No No No Std Black 2.54 60 $2,500 $795.16
$44,000 No No No Std Black 2.74 72 $2,500 $843.13
$44,000 No No No Std Black 2.54 60 $2,500 $965.92

Suddenly that Model 3 you have been drooling over for the last 18 months is not looking so great. You had read those payments on Tesla.com of about $1,000 for a Model S. At half the price of the base Model S, you figured a base Model 3 would be about $500 a month. So what the heck is going on?

First, until just recently all of those payments shown on the website were only for leased units with 10,000 miles per year limits. With a loan any tax credit incentives are meaningless. The credit can only be taken at the time you file your federal tax return. With a purchase, the full sales tax is charged on the entire purchase price at the time of delivery, not on just the monthly payment as is the case with a lease.

Now like most mass market people, you are probably on a budget. So after getting over this shocking news, you once again go back and talk to that Chevy Bolt salesman that told you about the $329 lease program. So with a few calculator inputs we see:

Lease Payment $329.00

Sales tax @7% $23.03

Charging $35.00

Insurance $120.00

Monthly Total $507.03

And to sweeten the Chevy deal, the GM (GM) lease allows for 15,000 miles per year, before you are charged a penalty for excess miles.

Then there is the 2017 Nissan (OTCPK:NSANY) Leaf. They are advertising lease programs starting at $229 per month plus tax. Either of these lease programs will be viewed as affordable to the mass market buyer.

Your wife looks at you and you already know the answer from her expression. You can kiss that Tesla you had your heart set on "goodbye." The difference between the Bolt and the Model 3 is about a month's worth of groceries for your family of four thanks to your wife's coupon clipping. With the Bolt, you can actually choose a variety of standard priced colors too, not just black.


A $35,000 base model all electric Tesla car sounded great at first. Then as you peel the layers off this onion your eyes start to water. $700 per month for a bottom of the line basic commuter car is not a reasonable or affordable payment. So once again Tesla will be selling cars to the affluent buyer. Can Tesla reasonably expect the Model 3 to sell 20 times the number of Model S units at its peak during 1H17? I cannot see how that will happen.

Tesla is going to need to come up with some sort of lease program, even if they once again have to guarantee the residual value as they did with the Model S. Otherwise they are going to get killed by Chevy, Toyota, and Nissan models. Without a competitive monthly payment, Tesla has no chance of cracking into the mass market.

With the company's future hanging in the balance, Tesla needs to score a big hit in the mass market with the Model 3. The current stock valuation has priced in annual sales of 500,000 units based in 2018 on Elon Musk's comments and projections. Unless they can find a way to come up with a more competitive monthly cost, hitting that target will be near impossible.

Disclosure: I am/we are short TSLA VIA PUT OPTIONS.

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