Tesla Changes Financing Plan to Silence Critics, Attract Buyers

Tesla Motors
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Tesla Motors

One month after rolling out a lease-to-own financing program that generated plenty of attention and bad reviews, Tesla is amending the program.

"When we did our first finance announcement about a month ago, we didn't get it quite right," said CEO Elon Musk during a conference call announcing the revisions. "We listened to a lot of valid criticism from journalists and customers so we have tried to take corrective action and make it a lot better."

These are the two primary changes to Tesla's financing program:

  • Higher Guaranteed Residual Value

    Tesla is guaranteeing those who lease a Model S will be able to return the car after three years with a residual value of at least 50% of its sticker price, versus the 43% the company announced last month.

    And it could go higher than 50%: Tesla said the Model S residual value will be greater than the three-year average of BMW, Audi, Mercedes and Jaguar. So if those brands' average residual value climbs above 50%, Tesla will match it.

    "What we are saying to people is you are going to get 20% more cash for your car in three years than our prior guarantee, so that is a pretty big jump," Musk said.

  • Longer Financing Terms

    Tesla is extending the length of the lease-to-own contracts to 72 months from 63. This move is not surprising, as the average length of all auto loans is now 65 months, and six-year loans are no longer considered unusual.

    As a result of the extended terms, the out-of-pocket cost for a Model S buyer will drop to $580, according to Tesla. That estimate is based on the amount of money Tesla projects owners will save by not buying gas.

Though the financing program is only a month old, 20% of Model S buyers have used it, Musk said. He estimates that 60 percent to 70 percent of buyers eventually will finance their purchase.

Tesla reports first quarter-earnings Wednesday. The company, which said it expects to sell 20,000 Model S vehicles this year, will announce how many it sold in the first three months.

Asked about it on the call, Musk said, "We do have our earnings call next week, so I have to avoid jumping the gun on that one, but I feel quite good about things."

—By CNBC's Phil LeBeau. Follow him on Twitter @LeBeauCarNews

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