Why did Tesla Discontinue its Resale Value Guarantee?

Tesla launched its “Resale Value Guarantee Program” in April 2013, ten months after Model S went on sale in June 2012.

Tesla was a very different company at that time. Model S was Tesla’s first foray into the luxury car segment. They had just one successful Model at that time, the Roadster and they had to stop building it so that they can take care of Model S production. Tesla didn’t have the 1000 plus supercharging stations it has today, they just had six, four in the west and two in the east coast in 2012.

The case for Model S wasn’t that strong and that was a big problem for a car that carried a price tag of $70,000 to $100,000. So the “Resale Value Guarantee” did make a lot of sense at that point as it created a floor on resale value.

But Tesla wasn’t flush with cash at that point. The electric car maker had just $202 million in cash by the end of 2012 and they reported a net loss of $396 million for the fiscal. Even the resale value grantee didn’t really sound like a proper guarantee considering Tesla’s financial position at that point.

Elon stepped in and promised that he will provide the cover for Tesla’s commitment to guarantee the resale value.

“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. – USAToday, April 2, 2013

The guarantee allowed Tesla customers to trade in the Model S after three years for the same residual value % of Mercedes-Benz S class.

“If a Mercedes S-class is worth 43% of its original value after three years and a Model S owner wants to sell his car after three years, he would be guaranteed to get at least 43% of the Tesla’s original purchase price.” – CNN

But things changed over the next few years. Tesla sold just 2,636 Model S in 2012, but sales soared to 22,477 units in 2013 and kept increasing in the following years. Now Model S has become the flagship sedan for Tesla.

“As of March 2018, Model S remains the top seller for Tesla with global sales of 224,590 units between June 2012 and March 2018.” – All About Tesla in 1Page

You don’t need a “Resale Value Guarantee” for your flagship.

Today, there are enough Model S on the road for a healthy used Model S market to exist. You can just let the market forces decide the resale value instead of Tesla making a commitment and straining its balance sheet.

Tesla discontinued its resale value guarantee program because it does not make sense anymore.

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