Tesla Ends Resale Value Guarantee Program For New Cars

Tesla Motors, Inc. (NASDAQ:TSLA) has terminated the Resale Value Guarantee program for new vehicles purchased after Jul 1 in North America, according to sources. The program guaranteed the resale value of a Tesla Model S after three years of purchase through one of the automaker’s loan financing programs.

The program which had been updated guaranteed that the value of the vehicle being resold will be higher than that of premium vehicles of manufacturers including BMW, Audi, Lexus, and Jaguar models. Tesla had introduced this program to reassure the buyers of Model S about the resale value of the vehicles in the market. The automaker also considered that this program would help it control its secondary market. Generally, premium vehicles’ customers resell their old vehicles for latest upgraded models within a few years of purchase. This makes resale value an important point of consideration for customers.

Tesla has undertaken this strategy in order to keep interest rates low as well as to offer a compelling lease and loan program to customers, per a company spokesperson. According to the company, the program was initially necessary to reassure customers, but now its vehicles are holding their value. Therefore, the program is no longer required.

The resale value liability had been increasing over time, and this proved to be challenging for the electric carmaker. As of Mar 31, the liability due to the resale value guarantee was $1.58 billion. In fact, the resale value liability increased by more than 20% since year-end 2015.

Simultaneously, Tesla announced a cheaper version of the Model X crossover. The new version of the Model X crossover, 60D, starts at $74,000. This is around $9,000 lower than the price of the Model X 75D. The Model X crossover 60D features a 60kWh battery, but has less torque and a shorter range compared to the 75D.

In Jun 2016, Tesla announced the launch of a cheaper version of Model S with a 60 kWh battery that comes in two variants, all-wheel drive and rear wheel drive. The rear wheel drive Model S 60 has a base price of $66,000, which can go down to $58,500 after a $7,500 federal tax credit. The car offers a range of 210 miles and a top speed of 130 mph, which can be increased to 246 miles and 140 mph, respectively, with a 75 kWh upgrade. Model S 60 can accelerate from 0 to 60 mph in 5.5 seconds.

Meanwhile, the all-wheel drive version, Model S 60D, has a base price of $71,000. The car offers a range of 218 miles and a top speed of 130 mph, which can be increased to 259 miles and 140 mph, respectively, with a 75 kWh upgrade. Model S 60D can accelerate from 0 to 60 mph in 5.2 seconds. Both Model S 60 and 60D come with Tesla’s active safety features and Autopilot hardware.

Tesla’s shares closed roughly 0.9% down at $222.53 yesterday.

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Tesla currently carries a Zacks Rank #3 (Hold).

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