Tesla Announces 'More Affordable' Model S (Update 1)

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Updated from 5:29 p.m. EST to provide executive comments from the conference call.

NEW YORK (TheStreet) -- Tesla Motors changed the car market with its popular electric cars. Now it's changing the market again, making the Model S available through a special financing program.

Partnering with Wells Fargo and U.S. Bank , Tesla says it has created a new kind of financing product "that combines the surety and comfort of ownership with all the advantages of a traditional lease." Wells Fargo and US Bank have agreed to put down 10% financing of the purchase price of the Model S with the 10% payment covered by state and federal tax credits. Customers will still have to put down the down payment, but the financing is cheap, with an interest rate of less than 3% CEO Elon Musk said on the conference call.

Tesla has been running a trial program with a majority of customers being accepted for financing. "This announcement is about improving affordability and giving people peace of mind," Musk said. "I do expect that demand will respond accordingly." Musk went on to say he expects at least half of Tesla's customers will choose this option, maybe more.

The company noted that when considering savings from electricity, depreciation and other factors, the cost of owning a mid-range Model S is less than $500 per month. After 36 months, owners have the option to sell the Model S back to Tesla, or keep it. If they keep it, Musk noted, it would take about five years for a customer to pay off the cost of the car. The resale value percentage is the same as the Mercedes S Class, currently 43% after 3 years, and is guaranteed by Tesla, and Musk himself.

On its website, Telsa provided the actual cost to own the car, which varies depending on how much a customer can actually claim in credits. Tesla assumes a $227 per month savings if you use the Model S for business, and assumes that your time is worth $100 per hour, not something usually seen in the value of a car payment.

When asked about Tesla doing its own leasing like traditional car manufacturers, Musk noted this was something that was not in Tesla's short-term future, but could be an option down the road.

Shares of the electric car maker gained 0.93% on Tuesday to close at $44.34. The stock is moving lower in extended-hours trading following the announcement, off 1.38% to $43.78.

--Written by Chris Ciaccia in New York

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