I have already been asked if I robbed a bank or something to be driving a Tesla (for the record, no). Among questions I get from people (How far can you go?, How does it drive? etc), the majority center on affordability. Even though my close friends and family won’t ask for for details, and I am kind of a low-key and private guy, I get the impression people want to know more. So here is a a quick post on how relatively-affordable a Tesla Model S may actually be.
First off I did not win the lottery, sell my kidneys, or strike a deal with the devil to buy my car (I do work with attorneys so that last part might be debatable). I am not remotely wealthy or well-off: as someone engaged in eldercare and working to build a family, I’m not even close. But I am a total nerd and, other than gadgets, cars are one of my few vices. Specifically, electric cars.
I won’t mince words: this is not a cheap car, no two ways about it. Looking at Tesla’s “no-haggle” MSRP on a Model S, sticker-shock doesn’t even begin to describe first-impressions! It is the kind of purchase requiring you to have managed your credit score and debt well, and have some cash saved for a decent down-payment. It’s easy to say the car is unattainable by anyone except rich people, and I felt this way; however, it turns out after researching I can say there are ways to afford this car without being a millionaire.
Secondly, there is that well-known federal EV tax-credit, which takes $7,500 off the vehicle’s sticker price. When leasing it comes out immediately, making the payment lower (but beware most leasing companies put that $7,500 into the car’s residual value). When buying, you recoup this tax-credit at a later date when you file your taxes. Also some states have additional EV tax or rebate incentives of their own. All of this can come together to drop the net price of a Tesla Model S substantially. And just in case you were wondering if that federal EV tax-credit is funded by deductions from your paychecks? It is, and I thank you for your support!
The next common way to save on a Model S is to buy or lease it from your regional Tesla inventory. A Model S “Inventory car” is brand-new with full warranty, but simply comes with 2000–6000 miles on it as would any typical demo car or loaner. The kicker is that Inventory car discounts fall between $10,000 and $18,000, a big savings when you factor in tax rebates or other incentives. Tesla stores can offer you a list of currently-available Inventory cars; however, Inventory cars go very quickly soon after they hit the list so you need to be planning to buy when you start looking at these lists. Another caveat: you must be flexible on the color and interior when buying an Inventory car.
Inventory cars like this are a good way to save…
Inventory car shopping is the route I took when I began seriously looking and, by the time I was ready to buy, I was just fine with getting Tesla’s somewhat low-end entry-level Model S “70D”. I also stuck with one of the least costly colors. Let’s just say I steered clear of Tesla’s high-end “P85D” which is already a house-payment before adding any options! Fortunately the 70D is already in a class by itself and better than most gas cars, so the more basic configuration is a great choice and helped with affordability when I decided to pull the trigger.
One uncommon way to get additional savings is trading “TSLA” for a Tesla (Full disclosure: I hold TSLA stock). I took this somewhat risky long-term path (years) towards saving on a Model S, investing a modest amount in Tesla and, while I do not advocate risking your retirement or life-savings on stocks, Tesla is an innovative start-up that could grow some of your money in the next decade (but maybe not in the short-term, woah volatility). There are no guarantees, but if this EV revolution stuff works out then the returns and dividends might pay for my car someday!
Speaking of trades, there is of course also the traditional car trade-in route to help with savings and Tesla can price your car through an established network pool of auto auction purchasing groups, so you can quickly determine the best trade-in value on your car. In some cases Tesla can even trade your lease — this sounds weird having “trade-equity” in a lease — but this is an option many dealerships will offer to someone nearing the end of their lease with no early-payoff penalty.
And speaking of leasing: it is the age-old popular hack for car affordability. Leasing is cheaper and, yes, allows you to drive a car that you might not ordinarily buy. Some people hate the idea of leasing a car. I am not one of those people. Instead of a loan based on the full MSRP of my (already discounted) car, my lease loan is for a portion of the car’s value over 3 years. This makes the monthly lease-payment dramatically lower over buying, and you can buy the car in 3 years’ time at a substantially lower price (depending on residual value, and remember: many lease companies add $7500 to EVs’ residual value at lease-end). Leasing is also a hedge : if Telsa disappeared in 3 years (extremely unlikely, but I am biased) you can walk away from the car.
Anti-leasing people say buying a car at lease-end is stupidly throwing money away because your 3 years of payments didn’t create equity. Pro-leasing people say leasing is a capital expenditure towards buying your favorite car in 3 years’ time, but getting to drive it now. What I will tell you is that new cars are always poor money-losing investments, no matter how you finance them. And a lot of people just don’t care what their car is worth after the loan is paid up. This probably irks any CPA or financial-planner, but car equity-valuation is, for better or worse, a rare concern for a lot of car drivers.
Ownership when buying is an interesting concept to me, anyway: a car becomes your “property” when you “buy”, but if you used a finance instrument to buy instead of cash you’re just paying a car dealer or bank…for the privilege of using their car until you satisfy the loan. Leasing means a smaller loan, for a shorter term, and somebody else’s name is on the title. This concept drives some people bonkers. Me? I’m just fine with it. If I thought I would drive more than 30K miles in 3 years, I would probably feel differently.
To lower the monthly lease-payment you can pay a larger capital cost reduction, but I do not recommend it. The cap cost reduction is often incorrectly called a “down-payment” to lower a lease-payment; but it is different since it is a cash outlay that you’re never getting back, and nets you zero equity in the car. So you need to think about what you’re doing before you pay extra cap cost reduction on a luxury-priced car. It will drop the monthly-payment, but it should be money you literally don’t need and won’t miss!
This leads me to an amusing Model S “money-saving” method: Teslanomics. Teslanomics is the dark arts of identifying every possible cost-of-ownership and amortizing it over the life of a car (fuel, maintenance, etc), then comparing it with a Tesla Model S. The Total Cost of Ownership will indeed demonstrate savings with a Model S if it’s owned long enough; however. Teslanomics’ is mainly just a cognitive post-purchase bias, but it’s also a great begging-technique to get buy-in from your significant-other!
The most practical and rock-solid path to affording this car is to buy used from Tesla’s CPO program, or on the used-car market. This way you take advantage of the 20–35% depreciation on what is still a cutting edge car. When you consider Model S has no gas engine with a hundred moving parts to wear out, and is low-maintenance, a used Model S is a fantastic option (pro tip: try to shop used Model S cars that have the Version “B” battery pack. Those Supercharge faster and were introduced somewhere in 2013 model year).
I need to stop and say something here about Tesla: I had the absolute best and easiest car-buying experience of any car company I’ve dealt with, bar-none. It’s true Tesla sells at a no-haggle fixed-price, based on your chosen configuration, but this also means no salesmen or middle-men to deal with. Tesla is onto something here and it has auto dealerships losing their minds as evidenced by NADA and state dealership lobbyists pushing laws to ban Tesla from direct-sales in several states. In Arizona and Texas the dealer lobbyists’ arguments were that ”franchise dealerships are needed to protect the consumer.” And they say this with a straight face!!
I know there are exceptions, but car-buying is by and large a ritual where both sides of the transaction never speak authentically, and you play the role of “reticent, undecided buyer” (even if you have your mind made up) while a salesman plays the role of your advocate trying to “get you a great deal”. You hear the stories of up-sells or people being sold a different car than they wanted because the dealer had inventory to move off the lot. You go back and forth, proposals and counter-proposals. Then, just when you think you have a deal negotiated, the salesman will probably say “let me go run that by my manager” at least once. Then there is the “closing cost surprises guy” that you meet at the end. It is here you may find rust-protection or other fun things you didn’t want to buy were added “a-la Lundegaard” (Fargo). The longer the haggling, the less faith a car-buyer has in the car’s price. Tesla isn’t cheap, but they do not have hidden up-sells and they keep optional package prices right there in the open. Elon Musk genuinely wants to change how car-buying is done. I wish him the best of luck, because if there ever was an industry ripe for disruption it’s car-dealerships.
Ok I saved a bonus: one last, sure-fire, way to save is to wait and buy a Model 3! The Model S and Model X are not cheap EVs, but Tesla will announce an affordable 200-mile range world-class EV by the end of the year. Model 3 will be their first large-scale, mass-production car for everybody and should launch at an affordable at $35,000 before any tax credits. This means a Model 3 can start at around $28,500! So if a Model S or X is not a fit, there are more affordable Tesla EVs coming to the showroom by 2018. When the Model 3 arrives, it is expected to be a game-changer since it will begin an era of affordable long-range EVs from car manufacturers.
In the end there is little practicality in wanting a Model S. There is no rationale. You take a test drive one day and suddenly it becomes an obsession, and you end up spending months looking at all manner of ways to afford one! I won’t argue with anyone who says I am nuts to get this car, but I’m extremely happy and satisfied with my decision. Model S is comfortable EV that eases the job and eldercare commutes for me, and does so with a little fun and acceleration thrown in.
So here begins a possible decade of me driving a single electric car, the Tesla Model S 70D. Will I change cars in 3 years, or will I drive this one so long that I must replace the battery in the next-decade? Check back with me in about one thousand days to find out! In the meantime, I will be that guy passing you in the left lane with a stupid grin on his face.
Originally published at julianwest.me on April 28, 2015.