Date
28 July 2017
The discontinuation of the buyback program allows Tesla to free up cash that had been set aside to buy back Model S cars. Photo: Bloomberg
The discontinuation of the buyback program allows Tesla to free up cash that had been set aside to buy back Model S cars. Photo: Bloomberg

Tesla ends buyback guarantee, cuts price of Model X

Electric vehicle maker Tesla Motors Inc. has ended a program that guaranteed the resale value of its cars, and lowered the starting price of its Model X crossover, Reuters reports.

The discontinuation of the buyback program, as of July 1, allows Tesla to free up cash that had been set aside to buy back Model S cars after three years at a value of at least 50 percent of the base purchase price, the news agency said.

The changes come after Tesla warned earlier this month it will miss its vehicle delivery target for a second consecutive quarter.

It faces other challenges, including a regulatory investigation of its Autopilot technology following a May 7 fatal crash and more scrutiny of its financials after a proposed merger with SolarCity Corp.

Within the next 12 months, Tesla has disclosed it could pay a maximum of US$192.4 million to cover resale value guarantees on 4,209 vehicles.

That amounts to a maximum liability of US$45,711 per car, although Tesla could offset payouts by reselling repurchased vehicles.

Tesla valued the total liability created by the resale value guarantee at US$1.58 billion as of March 31, according to its latest quarterly filing with the Securities and Exchange Commission, up over 20 percent since the end of 2015.

The program, begun in 2013, was intended to help Tesla control its secondary market and reassure buyers purchasing vehicles using its novel technology that resale values wouldn’t drop substantially.

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”.

Tesla has outlined an ambitious and costly plan to speed up the launch of its Model 3 sedan, and boost total production to a rate of 500,000 vehicles a year by 2017.

Meanwhile, the company said a new version of the Model X crossover, the 60D, will be priced from US$74,000, US$9,000 less than the Model X 75D.

Equipped with a 60kWh battery, the 60D has less torque and a shorter range than the 75D.

The Model X price cut follows a similar price reduction for the Model S, whose base price was lowered to US$66,000 last month.

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