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New Tesla sales plan offers the Model S for $500 a month, but only after some extremely creative math (update)

New Tesla sales plan offers the Model S for $500 a month, but only after some extremely creative math (update)

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tesla model s

Tesla has seen strong sales of its Model S electric car, but Elon Musk is now hoping to bring in more buyers — and to do so, he's rolling out a new sales plan that promises to give potential owners a Model S for a mere $500 a month. On its face, that's far less than you'd pay for a luxury car lease, and a monthly payment lowers the barrier for people who couldn't buy a Model S upfront but make enough to get one through financing. But once you scratch the surface, that low number is based on some fairly creative math.

Essentially, Musk's plan is this: Tesla and Wells Fargo will offer 10 percent down financing on a Model S, with the down payment offset by a minimum $7,500 tax credit for electric cars. From there, the loan will last for five and a half years, but there's also a lease-like component: after 36 months, you can sell the car back to Tesla if you want to trade it out or move on. Either way, though, you'll be paying $1,199 a month for the $72,400 85-kWh model, or $1,051 a month for the $62,400 60-kWh one. So how does Tesla get that number down to $543, as it prices the 85-kWh plan? It rolls in the savings you'll get from owning an electric car.

How does Tesla get $1,199 down to $543? Wrapping in $100 a month of 'time savings,' for one thing

Some of these are eminently reasonable. Tesla counts the amount you'd otherwise spend on gas against the cost of the payment, suggesting that you'd be paying that with a gas-powered car outside the sticker price. In its default calculator, it deducts $284 a month, based on driving 15,000 miles a year with a 19mpg sedan, paying $5 a gallon for gas. But other savings are much more abstract. By default, for example, it counts $100 in "time savings" from avoiding gas stations — using the somewhat dodgy metric that you'd spend one hour a month refueling and your time is worth $100 an hour. It also assumes buyers will deduct the car's operating costs as business expenses, removing a corresponding $227 a month.

On a call with reporters, Musk also acknowledged that while the tax credit will get you back your down payment, it won't do so immediately. As usual, you'll be waiting anywhere from a few months to a year for most of the money. Fortunately, once you get past the misleading claim featured prominently on Tesla's front page, it's actually pretty good about making the cost clear. Its "True Cost of Ownership" calculator shows just what it thinks you'll be saving for each item, and you can tweak the numbers as appropriate.

Ultimately, Model S financing will certainly open up the new Tesla to more people. It's still a car for the wealthy, but this makes it a car for the slightly less wealthy as well. What it's emphatically not, though, is a car with a $500/month up-front pricing plan.

Update: Elon Musk has appeared on Bloomberg TV to discuss the new financing plan, among other things. He says the plan is designed to highlight "the true affordability of an electric car," explains that the 40 kWh Model S was canceled because it "just wasn't a good product," and teases some major upcoming announcements related to Tesla's Supercharger network. Of note is that Musk also plans to put a similar financing plan in place for the company's next car, the Model X.

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