I love Tesla, I love Elon Musk, but this unsettles me. It is unusual for a company so young to start pushing sales via financing. More so when the package includes a 3y repurchase obligation.
Start with Elon Musk personally backing the repurchase agreement. Was the bank unwilling to to take this risk? Why could they believe they can't securitise the risk? Granted this is U.S. Bancorp and Wells Fargo we're talking about. Will the risk live on Tesla's balance sheet? The silver lining would be the clarity investors will get into the assumptions that went into pricing the put.
Why we are already talking about financing? Wasn't the plan to improve accessibility by driving down prices through increasingly mass market models? Who is the marginal customer who balked at the cash price but is shifted by this? The one who doesn't have the cash? Or couldn't get a bank loan? These customers are probably less credit-worthy than Tesla's cash customers. The repurchase agreement is a callable loan to borrowers willing to fund a large discretionary purchase with debt. This will come home to roost if U.S. growth and thus incomes tank and erstwhile enthusiastic greenies start seeing their vroom vrooms as piggie banks.
We know that part of what pushed Tesla into profitability was its re-working of its DoE loan. Is this a way to pull forward sales? How are these "leases" accounted for when they're made? I'm keeping an eye open for if they recognise the full value of the sale, less an ignomiously small loss reserve, upon signing.
Comparatively minor but still irking me: why is Elon Musk implying his credit is better than Tesla's? Tesla has more loss-absorbing capital. Given the amount of Musk's net worth tied up in Tesla, his credit has a high correlation with Tesla's. I get that this is more a marketing stunt, but the emptiness is disappointing. Then again, I would have probably railed at Steve Jobs in 1998, too.
The bank is going to charge Tesla for a repurchase option, but if Elon makes it himself no charge to the company. If Elon really believes in his product then that option is one that will never get taken up, thus costing him nothing.
The repurchase option insures you against your reality diverging from Elon Musk's expectations.
Put it this way: Portugese Insurance Group (PIG) sells you an annuity that it promises to repurchase should the market crash. You find out PIG would go broke if it had to repurchase even 1% of outstanding annuities. "No worries," the broker assures you, "we really believe in this product. You will never have to take up the option."
Start with Elon Musk personally backing the repurchase agreement. Was the bank unwilling to to take this risk? Why could they believe they can't securitise the risk? Granted this is U.S. Bancorp and Wells Fargo we're talking about. Will the risk live on Tesla's balance sheet? The silver lining would be the clarity investors will get into the assumptions that went into pricing the put.
Why we are already talking about financing? Wasn't the plan to improve accessibility by driving down prices through increasingly mass market models? Who is the marginal customer who balked at the cash price but is shifted by this? The one who doesn't have the cash? Or couldn't get a bank loan? These customers are probably less credit-worthy than Tesla's cash customers. The repurchase agreement is a callable loan to borrowers willing to fund a large discretionary purchase with debt. This will come home to roost if U.S. growth and thus incomes tank and erstwhile enthusiastic greenies start seeing their vroom vrooms as piggie banks.
We know that part of what pushed Tesla into profitability was its re-working of its DoE loan. Is this a way to pull forward sales? How are these "leases" accounted for when they're made? I'm keeping an eye open for if they recognise the full value of the sale, less an ignomiously small loss reserve, upon signing.
Comparatively minor but still irking me: why is Elon Musk implying his credit is better than Tesla's? Tesla has more loss-absorbing capital. Given the amount of Musk's net worth tied up in Tesla, his credit has a high correlation with Tesla's. I get that this is more a marketing stunt, but the emptiness is disappointing. Then again, I would have probably railed at Steve Jobs in 1998, too.