Elon Musk will personally guarantee Tesla buyback values

Chris Woodyard, USA TODAY | USATODAY

Billionaire Elon Musk says he's personally going to guarantee a buyback value for his Tesla electric cars under a newfangled payment arrangement -- even if his company were to go out of business.

Tesla CEO Musk unveiled the new financing plan Tuesday in an effort to make Tesla Motors' pricey electric cars a bit more affordable. In the twist that makes the deal special, Musk will personally fork over the percentage difference between a Tesla Model S sedan depreciation at the end of three years and the depreciation over that time of the benchmark to which it has been pegged, a Mercedes-Benz S Class sedan. And he's putting his fortune behind it.

"Even if Tesla is unable to honor it, I will personally do so. That's what I mean by putting my money where my mouth is," said Musk in a conference call with reporters. Asked his net worth, he deferred, but said estimates of $11 billion were a "bit too generous."

He says he thinks the program won't end up costing him a dime because he's confident in the resale value of his high-tech electric cars, which are rated at up to 265 miles on a single charge.

Tesla says it is working with a pair of banks, Wells Fargo and U.S. Bank, on the arrangement that works sort of like a no-money-down, lease-to-own arrangement.

The new financing arrangement is important because costly batteries and new technology in electric cars have put them out of financial reach of many buyers. Earlier this week, Tesla, based in Fremont, Calif., announced it's not going to take more orders for the cheapest version of the Model S sedan, the one with the most limited range at about $57,000. Now, the cheapest one is a pricey $69,900 before rebates, plus $990 in delivery charges.

Under the new financing deal, buyers of the sleek electric cars can opt not to pay the usual 10% down. The down payment will be picked up by the two banks, which use the owner's $7,500 government electric-car tax-credit incentives for it, plus any state credits.

Then the owner makes a monthly payment, which Musk estimates would make the net cost of owning the car about $500 or $600. He comes up with the "net" part by counting estimated savings on fuel and maintenance that come with owning an electric car.

Now here's the most interesting part: After three years, owners can sell the car back to Tesla if they don't want keep it. Tesla will guarantee the return price, pegging the rate of depreciation to a Mercedes-Benz S550 luxury sedan. Musk says that model currently retains 43% of its original value after three years, according to ALG, a lease-price tracking service. Musk will guarantee his personal fortune against it, he says, even if Tesla were to fail. (While other electric-car companies have gone under, there is no hint of any financial trouble at Tesla, which said this week it expects to show a first-quarter profit.)

He says the idea was not born of desperation. "We don't have a demand problem, and we expect to sell about as many cars as we can officially make," he says.

Musk made his billions as a co-founder of PayPal, the online payment service. He also runs SpaceX, a rocket launching company.

The new arrangement will "fundamentally" improve the affordability of the cars, he says.