April 3 (Bloomberg) -- Tesla Motors Inc., the maker of electric cars led by billionaire Elon Musk, declined the most in more than a month after analysts questioned whether a new lease-style financing offer will boost demand for the company’s Model S.
Tesla fell 7.3 percent to $41.10 at the close in New York, the biggest one-day drop since Feb. 21, after closing at a record $44.34 yesterday. The shares have gained 21 percent this year, and topping a 9.1 percent rise in the Russell 1000 Index.
The Model S financing deal, offered by Wells Fargo & Co. and U.S. Bancorp, provides qualified customers with 10 percent of the purchase price and guarantees a minimum resale value after three years, Palo Alto, California-based Tesla said yesterday. The company “liberally employs” assumptions to arrive at its estimate that monthly payments under the offer are as low as $500, JPMorgan Chase & Co. said today in a report.
“Our early analysis suggests that while the program is likely incrementally positive, it may perhaps not prove a game-changer in terms of demand,” Ryan Brinkman, a New York-based analyst for JPMorgan, wrote in an investor note today.
The carmaker assumes prospective customers are “living in the states with the most subsidies and qualifying for business tax deduction,” among other assumptions, wrote Brinkman, who has a neutral rating on Tesla. The company’s monthly payment offer is “substantially closer to that of a conventional loan” than the “teaser” rate given by the company, he said.
Musk, 41, is counting on the Model S to expand the buyer base for electric cars that are still more expensive than those with conventional gasoline engines. Tesla, which has been at the center of debate over the future of the technology, said this week that higher-than-forecast demand for Model S drove its first quarterly profit in this year’s first three months.
Musk had teased the financing plan last week in a post on social-media site Twitter, when he said the company would make a “really exciting” announcement.
The program makes the Model S, which has a base price of $69,900 before the federal tax credit, “affordable to a much broader audience than people think is usually the case,” Musk said on a conference call yesterday. High-end versions of the car sell for more than $100,000, including a larger battery pack.
“We do not think the new financing arrangement lived up to the hype -- and related stock move -- heading into the announcement,” Ben Schuman, a Pacific Crest Securities analyst, wrote today in a report.
While the financing plan is essentially a five-year loan with a 2.95 percent interest rate, after three years customers have the option to resell their car to Tesla, Musk said yesterday on the call. The loan is for 63 months, rather than a 66-month term initially posted on Tesla’s website, said Shanna Hendriks, a company spokeswoman.
The company will buy the car back at a guaranteed residual price pegged to Daimler AG’s Mercedes-Benz S-Class sedan, Musk said yesterday. Daimler is a Tesla stockholder.
“Although Tesla characterized the financing program as ‘revolutionary,’ it is similar to a car loan with a buyback option,” Elaine Kwei, an analyst at Jefferies Group, wrote today in a report. The New York-based analyst cited “a week’s worth of buildup” prior to Tesla’s announcement for the decline in the shares that followed.
The carmaker’s estimate that the “true net out of pocket cost” for a mid-range Model S would drop to less than $500 per month counted savings relative to owning a gasoline vehicle and assigned monetary value to time saved by a solo driver taking advantage of carpool lanes, among other considerations.
“Just factoring in stuff that’s true out of pocket, you can buy the 60-kilowatt Model S for $400 or $500 a month, net cash out of pocket,” Musk said in a telephone interview. “I consider gasoline to be a tangible cost.”
The amount excluding those items is at least twice as much, Tesla’s website shows. Excluding savings on fuel, a business tax benefit cited by the company and time, a customer using the program has a monthly payment of $1,051 for the Model S with a 60-kilowatt-hour battery pack, using a cost-calculator on Tesla’s website. That rises to $1,199 for an 85-kilowatt hour version or $1,421 for the 85-kilowatt-hour performance car.
“We expect any increase in reservations based on this announcement to be minimal as $1,200 per month over 5.5 years still limits Tesla to an exclusive group of buyers,” wrote Pacific Crest’s Schuman, who rates the shares the equivalent of a hold.
Tesla’s $500 payment estimate was described as “dubiously calculated” by Mashable.com and “bizarre” by Wired.com.
“I’m really sensitive to the idea that we are somehow misrepresenting the true cost of the car,” Musk said in the interview. “I really don’t think we are.”
The timing of the announcement may “hint at a slowdown in new orders or uptick in cancellations,” JPMorgan’s Brinkman said. Musk declined to discuss those topics during the conference call.
Kelley Blue Book estimates that the residual on a 2013 Mercedes S550 sedan is 47 percent of its $95,905 list price.
Musk, who has a current estimated net worth of $2.9 billion according to the Bloomberg Billionaires Index, said he is “personally standing behind” the residual value offer “even if Tesla is unable to.”
“That’s what I mean by putting my money where my mouth is,” he said, referring to a comment he made March 25 on Twitter while teasing yesterday’s announcement.
Tesla said this week that during the first quarter it sold at least 250 more of the battery-powered Model S sedans than the 4,500 it had forecast in February. As a result, the company reached “full profitability” during the quarter, according to a March 31 statement that didn’t specify how much Tesla earned.
The automaker last month renegotiated repayment of $465 million of loans with the U.S. Energy Department to return the money five years ahead of schedule.
Doing so generated a one-time benefit in the first quarter worth about $10 million, Jeff Evanson, a company spokesman, said in an interview. That and the improved Model S sales have boosted the company’s outlook, he said.
Tesla last month also e-mailed people who’d made a deposit for a Model S, encouraging them to complete the order and payment process by the end of March, according to a copy of the message obtained by Bloomberg News. Tesla confirmed the e-mail, which asked customers to help it reach a “huge company milestone” by attaining its first profit in the quarter.
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