Tesla Motors Inc. TSLA, quietly discontinued its resale value guarantee program as of July 1.
The program was "discontinued ... so we can keep interest rates as low as possible" and offer "compelling" lease and loan programs to customers, a Tesla spokeswoman said Wednesday. The program was available to those who financed their cars through Tesla official financing partners and programs. It guaranteed that Tesla would buy back the car at a minimum preset value after three years and at preset terms, in some cases at least 50% of the car's base price.
It was first offered in 2013, largely to assuage early-adopter fears and ensure buyers that their Model S, Tesla's first in-house designed and built electric car, would hold value in case sales tanked or other problems arose.
While much of the recent public attention surrounding Tesla has focused on the car's self-driving or "autopilot" feature, which was implicated in the May 7 deadly crash and has resulted in a NHTSA probe as well as a potential SEC inquiry into whether the company misled investors by not reporting the death at the time of Tesla's May equity offering, the real problems facing Tesla is not so much whether its cars are safe but the increasingly evident lack of demand at any price point.
Last month, Tesla cut the base price of its Model S sedan to $66,000; this happens at a time when Tesla has missed its sales targets in the first two quarters this year. Then earlier today, Musk also added a lower-priced version of its Model X crossover. The new Tesla Model X 60D is priced from $74,000, $9,000 less than the Model X 75D. Equipped with a 60kWh battery,
But the real sign that Tesla is concerned about flailing demand for its cars came later in the day, when Tesla said it had discontinued its resale value guarantee program that assured buyers that cars would retain value over time.
As Reuters adds, the discontinuation of the buyback program, as of July 1, shows the company stepping back on a pledge begun in 2013 that Tesla would buy back its cars financed through specified loan partners for a predetermined resale value after three years. The program was intended to help Tesla control its secondary market and assure buyers that cars would retain value.
This means that used Tesla values are dropping faster than the company had expected in its worst case scenario, and as a result it can no longer afford to fill the gap. With this program ending, demand for new vehicles is set to slump even more as concerns about resale prices emerge.
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."
What he really meant but would never say is that demand for Teslas, both new and used, is cratering, something which will promptly be reflected in prices of used Teslas as they suddenly hit the market now that the company is no longer backstopping all repurchases. And, we expect, once the public realizes what the true clearing price of these vehicles is, demand for new cars will slump even further in a feedback loop that ends with Tesla eventually running out of cash.
But not quite yet.
The most recent publicly disclosed valued of Tesla's liability created by the resale value guarantee was $1.58 billion as of March 31. The resale value liability had increased by more than 20 percent since the end of 2015. Needless to say, the ending of the program simply means that Musk no longer wanted to accumulate a massive liability which would, sooner or later, have to be met with actual cash outflows by a company which already burn $2 billion annually in a good year.