Editor's choice
24 Mar 16

“Tesla also wants to lead in selling pre-owned electric cars”

An electric vehicle? Sure, but what about the residual value? Uncertainty about EV RVs is one of the biggest obstacles to wider adoption of electric mobility. Tesla thinks it has cracked the problem, by offering a buyback guarantee. So, does it work? We asked about the European Remarketing programme at Tesla Motors.

A buyback guarantee is a fairly unusual practice in the lease industry. Why did Tesla go for it?

Tesla: “As our sales increased in Europe, we’ve recognised two key problems. Firstly, lease companies can’t follow their traditional processes for determining residual values when it comes to our Model S. And secondly, lease customers were getting monthly payment quotes for Teslas that were higher than they should be, given our expected RVs”.

“The reason of course is that Tesla is a new player, uses new technology, and works with a different business model. There is no historical data to base RVs on. We at Tesla feel we’re best placed to guide the market on those future RVs, but rather than just talking about it, we decided to actively support those RVs with a financial commitment of our own”.

Which is where the buyback guarantee comes in.

“Indeed. It allows lease companies to set RVs for Teslas that are closer to actual market values. And it creates the opportunity for lease customers to enjoy more reasonable leasing rates on Teslas”.

“And on top of that, it gives us a channel of used cars for our own remarketing efforts. Tesla doesn’t just want to sell new cars, we also want to play a leading role in selling pre-owned Teslas”.

Where does the buyback guarantee apply?

“It’s available to each leasing company in Europe that offers operational lease solutions. They can apply, but only if they pass on the advantage to the client, by using our buyback value to set their RV at an appropriate level. And it works: we’ve registered an uptick in demand for Teslas from lease customers since we’ve introduced the programme”.

How does Tesla remarket these buybacks?

“Last August, we’ve launched Pre-Owned Model S sales in Europe. Each has passed a 200-plus-point inspection by Tesla Service. And each comes with a four-year or 50,000-mile/80,000-km limited warranty from indicated mileage upon delivery, and a drive warranty with 24-hour roadside assistance”.

That sounds great, but is there any aspect of the programme that appeals specifically to the fleet client?

“For corporate clients, the greatest advantage is that they can find compelling solutions for a Model S from their current lease or fleet management provider. Vehicle depreciation makes up a large part of fleet clients’ monthly lease payments. Since Tesla is the one assuming the risk of the RV, lease companies don’t have to factor in any value uncertainty. Consequently, the fleet client only pays for the depreciation they experience. In other words: they only pay for what they actually use”.

Which lessons are you learning from the buyback formula so far?

“In addition to our RV guarantee and buyback agreements, we’ve also started taking back Tesla vehicles in exchange for newer models. We’re seeing that our upgrading customers continue to be inspired by Autopilot, Dual Motor All-wheel-drive, and other Tesla innovations. Also, we’re happy to hear that our customer service approach is pretty unique in terms of personal contact and quality”.

Do the resale numbers live up to your expectation?

“We’re witnessing strong demand for the pre-owned Model S, thanks to its high value and improved affordability”.

Tesla’s buyback scheme is motivated by the fact that RVs continue to be a big unknown for electric vehicles. How and when will that change?

“We now have the opportunity to shape RVs, not just for Tesla itself but for electric vehicles in general. Our drivetrain and battery come with an 8-year unlimited mileage warranty. Combined with the fact that these parts require minimum service, we’re shaping a positive trend for RVs. This is all part of transitioning to sustainable transportation”.

Authored by: Frank Jacobs