Tesla Motors Inc (TSLA) Vehicle Buyback Plan Could Boost Revenue

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Tesla Motors Inc (NASDAQ:TSLA) shares started rising again today, gaining another 3 percent as the automaker kicked off its expansion into Europe. Bloomberg Industries notes today that the company stands to gain quite a bit of revenue from the expansion of its used vehicle buyback program.

Tesla Motors Inc (TSLA) Vehicle Buyback Plan Could Boost Revenue

Benefits from Tesla’s buyback program

The automaker announced earlier this year that it will buy back Model S sedans from customers who choose its leasing option. According to Bloomberg Industries (via Businessweek), this plan could help Tesla Motors Inc (NASDAQ:TSLA) generate even more revenue by selling used vehicles.

Analyst Kevin Tynan said the plan gives Tesla more control than traditional automakers over how much its used vehicles sell for. He said the automaker could bring in $368 million in annual revenue in 2016 by selling the used vehicles. He said the company could also see $40 million more in annual gross profit thanks to the plan.

Tesla continues to break traditional auto industry rules

“Buying back three-year-old cars at a set price means Tesla to a great extent can control the secondary market for Model S and other cars it brings out,” Tynan told Businessweek. “The company’s going to be the main buyer and gets a chance to earn a second gross profit on the same car.”

According to Tynan’s estimates, Tesla Motors Inc (NASDAQ:TSLA) will offer about 46 percent of the original price of the Model S sedan. The lease finance plan, which was announced in April and was criticized initially for overstating how much customers would save, guarantees a Model S resale value “equal to 50 percent of the base purchase price.” That’s for the entry level model, which is priced at around $70,000. It also guarantees “43 percent of the original purchase price for all options” after the owner has had the vehicle for 36 months.

In May, Tesla revised the plan to say that owners can choose to keep their vehicles and their loans open for up to six years. To determine how much Tesla Motors Inc (NASDAQ:TSLA) can make from selling used vehicles, Bloomberg Industries assumed the automaker would resell 10,000 used vehicles in 2016 with an average resale price of $36,763.

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