Tesla Plans Business Leases for Model S With New Finance Arm

Apr 08, 2014 4:44 pm ET

(Updates with analyst’s comments in third paragraph.)

April 8 (Bloomberg) -- Tesla Motors Inc., a year after creating a lease-style program for its Model S electric sedan, is setting up a financing arm targeting corporate buyers of the premium battery-powered vehicle.

Small and medium-sized businesses will be able to calculate the cost of leasing as they configure the car on Tesla’s website, the Palo Alto, California-based company said today in a statement. The new Tesla Finance unit will offer loans from partner banks in addition to a resale-value guarantee available under the current program.

“These kinds of business leases are offered as a perk to vice presidents, company directors, C-level managers,” said Alec Gutierrez, an industry analyst for Kelley Blue Book in Irvine, California. Bayerische Motoren Werke AG’s BMW and Daimler AG’s Mercedes-Benz actively promote them, “and it’s a good market for Tesla to go after,” he said.

The carmaker led by Elon Musk is looking to boost production by 56 percent this year as exports to China begin and the brand expands in Europe. Pushing into business leasing makes sense for the Model S, priced from $71,000, said Craig Irwin, an analyst with Wedbush Securities.

“A large portion of luxury vehicles in the U.S. are leased, and it’s not surprising to see Tesla start with business leasing,” Irwin said via e-mail.

He rates the shares the equivalent of a buy.

“These financing options, when combined with the fuel savings of Model S, provide an attractive value proposition,” the manufacturer said.

Earnings Dilution

Tesla began offering lease-style financing for individuals in April 2013 through a partnership with banking companies U.S. Bancorp and Wells Fargo & Co.

Tesla didn’t immediately provide capitalization and other details of its new finance unit. The company raised a total of $2.3 billion from selling convertible notes in March, said Jeff Evanson, Tesla’s vice president of investor relations. The proceeds are for its planned battery factory, model development and “to accelerate the growth of its business in the U.S. and internationally,” the company said in a statement.

Separately, Tesla said that May 2013 warrants with a strike of $184.48 and March/April 2014 warrants with strike prices of $512.66 and $560.64 may separately have a dilutive effect on the company earnings as the market price for the company’s common stock has risen.

The warrant announcement is “not meaningful,” Irwin said.

“This is just noise with the company correctly covering the complex details for analysts.”

Tesla rose 3.8 percent to $215.46 at the close in New York. The stock had gained 43 percent this year.

--With assistance from Tom Lavell in Frankfurt.