Tesla yesterday announced it was offering better pricing on leasing, thanks to an arrangement between the company and US Bank. The company made clear that the bank -- being in the financial services business -- has a "lower cost of capital" and therefore lease payments would be lowered by up to 25%. But in the land of the Wall Street Journal, no good news goes unpunished. It reported that Tesla "looks to lift sagging U.S. sales through new incentives." Tesla CEO Elon Musk had this to say in response:
Article in @WSJ re Tesla sales is incorrect. September was a record high WW and up 65% year-over-year in North America.
— Elon Musk (@elonmusk) October 28, 2014
It should be noted that Tesla reports quarterly earnings next week for the quarter that ended in September. Through the first half of the year, sales were up about 40% from the prior year and the company has guided toward a very strong second half that would see total deliveries from July through December equal to all of 2013. In every public statement Tesla has made, it explains the constraints on growth are production-based and not on the demand side.
Still, that didn't stop the Journal. Among the questionable "facts" in the story consider just this one for openers: "leases represent a substantial share of Tesla sales." Well no, they don't. Tesla started leasing only in the second quarter of 2014. Prior to that, it did begin offering a purchase option that has lease-like elements in 2013. In that program, buyers are guaranteed that Tesla will repurchase the car after three years at a minimum price. It's not, however, a lease and is completely unaffected by today's announcement.
Also unaffected by it is Tesla, which will collect exactly as much per car leased through US Bank as it did before under the lease program it was offering. Musk again, on Twitter: "Also, lease price improvement is due to US Bank deal. It is *not* a discount. Revenue to Tesla is unchanged." So basically Tesla is getting prospective customers a better deal at no cost to Tesla, which sounds like unqualified good news. It's also not especially material. The question of whether to lease or buy is sort of a coin flip for buyers. You shell out a bit more on the down payment with Tesla's purchase plan, but you get to take the $7,500 federal tax credit if you do. Lease customers don't get that but instead get a savings on the monthly payment of $200-300 per month. While that seems like a clear win for leasing, with more money out of pocket initially and no chance to benefit from the potentially high resale value of the car, it's not a clear-cut choice for many.
Leaving that aside, the entire sourcing for the report of flagging U.S. demand is Wards Auto, which claimed Tesla has sold 10,335 cars in the U.S., a whopping 26% below last year's figures. Tesla doesn't actually report sales by region so it's not exactly clear how Wards complied that data. What is clear is that if that number has any truth to it for the year, demand wasn't flagging in September when it was up 65%, per Musk, who would be liable for some securities law violations if his number were shown to be invalid. (In other words, bank on the fact that September sales rose sharply in the U.S.)
It's also important to understand that Tesla only started selling vehicles overseas in the latter part of 2013 and so there was always a strong possibility it wouldn't have as many cars for sale in North America in 2014 as it did a year ago. The company is doubtless managing this the best way it sees fit, which might not always be the best way individual customers see it.
Here the Journal again goes off the rails. It notes that Tesla plans on selling 35,000 cars and "has said it expects half of its sales to be outside the U.S. by the end of 2014." Somehow it concludes that because U.S. sales are only at 10,000 through whatever period Wards claims that it cannot possibly achieve this mythic total of half the year's goal. This would be relevant analysis only if Tesla truly were planning to sell that many cars in North America, if it was seeing flagging demand here, and also if it didn't have customers for the vehicles elsewhere.
So here's what Musk actually said earlier this year about where he thought Tesla would sell cars: "Actually, the best fidelity that we can forecast right now is really that we think non-North American sales will be about twice the size of American sales, roughly speaking." In other words, not half. So if Tesla indeed has sold 10,335 vehicles through 3/4 of the year, it appears well on its way to selling something around 13,500 for 2014 -- comfortably more than 1/3 of its total forecast. The company told the Journal that Model S was backordered into December, which also suggests demand remains strong.
Finally, by next week we'll know how good that 35,000 number for the full year is looking. It's true Tesla offered something new yesterday that could be construed as "sales insurance." You can now return your car within 90 days if you don't like, no questions asked. Musk called that the "Tesla happiness guarantee" but made it clear you can't use it to trade in your car for another one without incurring the cost differential. There was some unhappiness last month when the all-wheel-drive D variant was rolled out and people who had recently taken delivery learned they couldn't upgrade to it.
Certainly in the voracious news cycle the need to fill it with something is noted. But the question is whether the need to fill it with questionable analysis of the state of Tesla is a fair one. Feel free to call me out on it when I do the same.
