Late in the evening of April 11, Tesla (TSLA) finally started offering leases in the US on model 3. Many on both sides of the Tesla debate have been waiting for leasing. Bulls believe it will significantly increase demand, because Model 3 customers (unlike S and X customers) will often not be able to handle an all-cash deal. Bears believes that the more model 3 competes on equal terms with competitive cars, the more obvious the lack of demand.
But when we look at the details of the lease offered, it's hard to believe that this is a serious attempt to increase revenue or increase volumes, and it looks like both bulls and bears will be disappointed.
How does Lease Pricing look like?
I recently (December) rented a new 2019 Volvo XC40 (under Volvo's innovative new subscription program), and then I offer readers a comparison to analyze the relative overcoming:
As you can see, Volvo (a highly chosen T5 Momentum AWD) is about the same cash price as Tesla M3 SR +. When assessed at a rental rate per dollar, Volvo is better than both Tesla models shown up to without considering that the Volvo program pays for all insurance and maintenance, while Tesla tenants must take care of themselves. As a further control of the market price, BMW (OTCPK: BMWYY) says that a rental agreement for the 330i (slightly more expensive than M3 SR +) is only $ 449 per month at $ 3,925 in front and for its X6 sDrive35i (comparable to M3 P) is only $ 599 per month with $ 4,425 up (both three years, 10,000 miles annually).
So who would enter into a lease on such terms, especially with regard to the lack of a call option? But perhaps the lack of a purchase option is more important than the fact of the lease. Tesla explains the lack of a call option as follows: "Customers who opt for leasing over ownership will not be able to buy their car at the end of the lease because with full autonomy coming in the future via an over-the-counter – Software update, we plan to use these vehicles in the Tesla equestrian center. "Then the real point of this initiative is not to get leasing customers (as Musk has already told us is bad for finance).
If you can't sell cars, build networks
It looks like the real point of this announcement is to refocus the attention on the Tesla Mobility story – hope that Tesla's real value doesn't is like a car manufacturer but as an EV Uber with autonomous cars. Now Elon can say, I have a car fleet plan – ex-lease Model 3s. All that is needed next is the autonomous driving. Not by chance Tesla has a large presentation on this planned on April 22. Combining this lease announcement and the autonomous driving representation can distract investors from the scheduled Q1 funding on April 24.
Considering Tesla's chances of actually building an autonomous hiking network lies far beyond my competence. My background is economical and not the automotive industry. I refer readers to real experts, such as Paulo Santos, who have provided excellent recent coverage here. My point today is the terms Tesla leasing offered seem less designed to attract tenants, and more designed to change the story of the stock price – to assist in moving discussion away from production issues and lack of demand and towards the brilliant future as a uber-with-no drivers.
Investors should not expect any significant effect on Tesla's finances from this lease initiative. I do not expect a big recording of the offer. Rather, they should see this as part of an attempt to redirect the Tesla story. Is it an honest attempt to shed light on the future as Musk & Co.? Looking for Tesla, or is it a desperate attempt to distract Tesla's current problems and the upcoming likely to be terrible Q1 economy? Investors must use their own judgment.
However, I will offer a final thought to the readers. The announcement from Tesla was not just about leasing, but it was also about SR which should now be offered as SR + with only software limitation. In other words, you can buy the promised $ 35k (plus different fees) version of the Model 3 and it will be exactly the same car as an SR + store for a restriction that can be deleted with a future payment. But the price for Tesla to produce the car is the same if you buy the SR version or SR +. There are two possible explanations for this. One is that the demand for SR + in North America has evaporated to such an extent that it is willing to sell the same car (from Tesla's point of view) for a lower margin and the hope of a future upgrade fee. The other (my favorite) is that it has finally accepted that it cannot sell SR for profit, and it just hopes to sell someone to say it fulfills the promise, but not enough to make the losses significantly worse. I think this is supported by the fact that you can't buy SR online – you have to call Tesla or go into one of the remaining stores to buy. Readers are invited to give their own views in the comments below.
Notice: I / we have no positions in any of the aforementioned shares, but can start a short position in TSLA during the next 72 hours. You wrote this article yourself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.