(Photo by Justin Sullivan/Getty Images)
(Photo by Justin Sullivan/Getty Images)

SAN FRANCISCO - Daniel Rey was excited to finally make good on the reservation he made for a Tesla Model 3 sedan three years ago. But he was caught off guard when he read the terms of the leasing agreement this month.

Leasing the car - which Tesla began offering this month for the first time on the Model 3 - would cost an estimated $22,000 over 36 months, according to a quote Rey received from Tesla's website last week, nearly 60% of the $37,200 cost of ownership. And there would be no option to buy the vehicle after the lease.

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"It sounds like a subscription or almost like a rental agreement," said Rey, 51, of DeKalb, Illinois. "Like you're renting it, not leasing it."

The long-awaited leasing program for the Model 3, which Tesla has pitched as its mass-market offering that will make electric cars mainstream, comes with a twist: The automaker will not allow consumers to buy the vehicle at the end of the three-year period. Instead, the Silicon Valley automaker intends to absorb all returned Model 3s to launch an eventual robotaxi fleet, a roving network of self-driving vehicles.

Those who would lease the vehicle seemed to be getting the short end of the stick, consumers and analysts said.

"The nice thing is that essentially customers are fronting us the money for the car," Tesla CEO Elon Musk said at a Tesla investor event in the company's hometown of Palo Alto, California, on Monday. "It's great."

Auto industry observers said they have never seen such a leasing program - in which leases subsidize an ambitious fleet strategy intended to rake in profits for the automaker. Contrary to the Model 3, Tesla allows consumers to buy the Model S luxury sedan or the Model X, the SUV, at the end of the lease, according to its website.

Consumers and analysts questioned whether Tesla's move was intended to fill the coffers of the debt-laden company and buoy sagging Model 3 demand in the short term. Earlier this month, Tesla said it delivered 50,900 Model 3 vehicles in the first quarter, falling short of the 63,150 delivered in the previous quarter, though it has said deliveries don't reflect demand. Tesla is due to report its first-quarter earnings Wednesday.

Tesla's leasing model presages a vision of the future of automobiles in which consumers don't own vehicles anymore, and auto companies become service providers of rides. But doing away with the option to purchase shows the way consumers might get shortchanged.

Of course, Tesla's plans for a robotaxi service - which it said could operate for as little as 18 cents a mile, compared to manned trips that cost $2 to $3 to cover the same distance - may not materialize in Musk's tight time frame. And Tesla could eventually decide to let consumers buy the vehicles at the end of the lease.

Tesla declined to comment.

"I'm just not aware of an automaker that doesn't allow an option to purchase at the end of the lease and has plans to use it for their own internal ride-hailing fleet," said Garrett Nelson, senior equity analyst with research firm CFRA, whose area of expertise includes all the major American automakers and the auto supply chain. "This is definitely something unique."

One eerie parallel is a leasing program for the General Motors EV1, a consumer electric car that was available to lease two decades ago, before GM abruptly ordered the whole fleet returned without an option to buy, as recounted in the documentary "Who Killed the Electric Car?" The cars disappeared from the roads entirely.

Some analysts said the reduction in federal electric vehicle tax credits for Tesla vehicles from $7,500 to $3,750, with a further reduction later this year based on its sales volume, could play into Tesla's timing on leasing, though Tesla has long indicated that it planned to offer Model 3 leasing. The potentially sagging demand could have prompted Tesla to offer leasing to a wider swath of consumers, who could afford monthly payments over outright ownership. Tesla announced its Model 3 leases earlier this month as part of changes to pricing on its vehicles.

"I mean look, they're not doing this in a position of strength," said Dan Ives, an analyst at Wedbush Securities. "They had to do something right now . . . because they're going into a fork in the road situation over the next six to nine months and to do this without leasing would have been, I think, a huge dagger." He called Tesla's model a "shadow leasing program."

For months Steve Berman, an Alpharetta, Georgia-based technology executive, had seen the Model 3 displayed in the showroom 2 miles from his home. Last Saturday, after the company announced leases, Berman and his son ventured to the Tesla shop to price out a Model 3 the moment it opened.

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"My wife and I are trying to keep a budget," he said. "When the lease came out, I realized, financially, this might be within our grasp to do and still hold to a budget."

Berman said the terms of the lease made it impractical, though the insurance costs were the factor that ultimately dissuaded him. He said he began to consider a Volkswagen e-Golf or a Hyundai Kona EV.

"I think he thinks he's Willy Wonka in a way with the Everlasting Gobstoppers," Berman said of Musk. "He really wants to be this magic guy, he's in full control of everybody's car, and we'll drive them the way he says. . . . I think he's misreading the American market - I think people want to buy the car."

Rey, who had waited three years to buy a Model 3, said he'd look instead at plug-in hybrid models such as the Chevrolet Volt or Ford or Lincoln's lineup of hybrids to replace his aging Prius.

"I think we're gonna pass on leasing," he said. "It just feels like I'm financing more of the purchase than Tesla is."

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