Buying a Tesla Roader could be Risky

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Buying a Tesla Roader could be Risky

The Tesla Roadster is one of the hottest cars on the planet. In addition to being an exotic looking vehicle, it's also 100% electric, goes 0-60mph in about 4 seconds, gets about 135 mpg (equivalent), 250 miles per charge, and Tesla claims it only costs about $0.01 per mile. Wow, fast and environmentally friendly, who couldn't love that? Puts my gas-guzzling V10 Dodge Viper to shame. The Tesla Roader retails for only about $100,000 with all the options, which is a steal for the performance, looks, and electric-powered feature. Al Gore and the Hollywood elite that are environmentally-friendly no longer have to puts around in some hybrid-electric car that may get 50-100mpg, but is slower than molasses and is as ugly as sin!

Although all of Tesla's 2007's model years are sold out - more proof of how "hot" this car truly is. A friend of mine was interested in purchasing a Tesla Roadster a few weeks ago and inquired about how to reserve one. Tesla Motors told him that they require a deposit of $75,000. No big deal, right? Wrong. It's actually called a "reservation payment" and not a deposit. While that distinction doesn't seem a big deal, my friend looked into it further and discovered that this $75,000 (3/4 the price of the car) is not put into escrow. That is, your deposit, err, I mean reservation payment is given to Tesla Motors and they can do whatever the hell they want with it. They can use this money to fund their capital expenditures and to build other people's cars ahead of you.

If Tesla Motors goes belly-up after you give them $75,000, don't expect your money back. You will have no legal recourse, except maybe to fight for scraps in a bankruptcy court after the banks and creditors have taken the lion share.

I couldn't believe my ears that it could be possibly true that a customer could spend $75,000 as a down-payment for a product and potentially be out $75,000! So my friend forwarded to me his email interactions with Tesla Motors. I took some highlighted excerpts from the email back & forth.

Friend: Tell me, and I hate to ask this, my money other words if you cannot deliver a car in Q4 2007 for whatever reasons, how do I know that you have not used the $75K for operating expenses during that time?  Is it in escrow?

Tesla: In terms of the deposit, it is not put in escrow so you would become an unsecured creditor. But the most expensive part of manufacturing has already been committed by us. We have purchased all the necessary tooling and it is already in the plant. So money would not be a reason for us to not produce a car. We're also ahead of schedule in terms of safety testing. We are setting enough aside to allow for those who will ask for a refund as well. In addition, we have raised $60M but will most likely go out for more capital late this year or early 2007 and there are quite a few investors knocking on our doors to invest. So finding capital will not be like it was for our first 3 series.

I'm thinking "What? They are looking for investors and 'finding capital' (investments) while their customers are putting huge amounts of unsecured money into their hands? Essentially the customers are the VCs (venture capitalists) whether they know it or not!"

Friend: I see. I had thought this was escrow. If I interpret this with my legal eye, then it reads: "The company may do anything with your money, including not delivering you a car, and you have no recourse.

Tesla: You are correct in that you would have no recourse. But of course, we can't let that happen and won't let it happen. We are pretty far along in our pre-production efforts and will build our first 10 production vehicles beginning in December. At that point, you should feel confident that we are a go. Could we have a delay in production - sure. Most car companies do.
But will we not produce cars? No. I guess until we make money, there wouldn't be a time that you would be completely covered. After these Roadsters are reserved, we'll start taking reservations for 2008 MY roadsters for delivery in 2008. And it will be the same process. I'm not envisioning any grounded stock until 2009 or 2010. But of course, I wouldn't want you to do this unless you feel good about it.

Friend: I can totally understand the product being late. That's fine - escrow usually has provisions for such things, or you just get your money back. But, what *is* financially unusual is to take a payment for a product and consider the monies as an "unsecured creditor". The only reason I can imagine you would d-this is because you need the cash flow for the business. Otherwise, it just doesn't make sense. If not, then why not just escrow the cash s-that customers have comfort that you won't use it to fund the business? Alternatively, you could provide basic legal paperwork guaranteeing me that I can get my money back under certain conditions, such as the inability to deliver a vehicle by date: [xx/xx/xx]. One cannot just send $75,000 to a company hoping that they get a product...can they? I wonder if the rest of the folks wiring cash know that they are unsecured creditors, vs. escrowed and pending customers?

My friend never did plop the $75,000 on the Tesla Roadster and I don't blame him. $75,000 isn't chump change to be risking. But I must admit, it is mighty, mighty, tempting. Besides the fast performance and killer looks, just take a look at the cool options below, including a valet mode that limits the car's range, acceleration and speed. Imagine the valet flooring it and it tops out at 60. Limiting the range feature sounds interesting. What if it cuts the engine after the car has travelled only 1 mile but is now on a freeway? That could be interesting if you are dead in the water in the middle of the freeway with a $100,000 car.

- Carbon fiber hard top
- Touch-screen Navigation system
- XM Satellite radio with 170 channels of digital sound, $400
- Bluetooth cellular phone integration
- Mobile charging cable
- Upgraded leather interior
- Tesla branded floor mats
- Mobile charging system

In addition, these options come standard on the Tesla Roadster:
- Charging unit to be installed in your garage
- Soft top
- A/C, power locks and windows, cruise control
- Heated seats, stereo-w/ CD player, iPod connector
- Unique PIN number to start the car and prevent hot-wiring
- Valet mode to limit car's range, acceleration and speed
- Alarm system that sounds when doors or windows have been opened
- Dual airbags, ABS brakes, and traction control
- Access to the carpool lane (HOV) without a passenger (subject to state and local laws)

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