No more Tesla buyback guarantee as company cuts price of Model X

Wed Jul 13, 2016 5:32pm EDT
 
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By Alexandria Sage and Paul Lienert

SAN FRANCISCO/DETROIT (Reuters) - Tesla Motors Inc has ended a program that guaranteed the resale value of its cars, and lowered the starting price of its Model X crossover, the high-profile electric vehicle maker said on Wednesday.

The discontinuation of the buyback program, as of July 1, allows Tesla to free up cash that had been set aside to buy back Model S cars after three years at a value of at least 50 percent of the base purchase price.

The changes come after Tesla warned earlier this month it will miss its vehicle delivery target for a second consecutive quarter.

It faces other challenges, including a regulatory investigation of its Autopilot technology following a May 7 fatal crash and more scrutiny of its financials after a proposed merger with SolarCity Corp.

Within the next 12 months, Tesla has disclosed it could pay a maximum of $192.4 million to cover resale value guarantees on 4,209 vehicles. That amounts to a maximum liability of $45,711 per car, although Tesla could offset payouts by reselling repurchased vehicles.

Tesla valued the total liability created by the resale value guarantee at $1.58 billion as of March 31, according to its latest quarterly filing with the Securities and Exchange Commission, up over 20 percent since the end of 2015.

The program, begun in 2013, was intended to help Tesla control its secondary market and reassure buyers purchasing vehicles using its novel technology that resale values wouldn't drop substantially.

A Tesla spokesperson said the program was discontinued to "keep interest rates as low as possible and offer a compelling lease and loan program to customers."   Continued...

 
A Tesla logo adorns a 'Model S' car in the dealership in Berlin, Germany, November 18, 2015. REUTERS/Hannibal Hanschke/File Photo