Tesla leasing for companies

Mario Kadastik · Apr 8, 2014

Tesla has just announced on a blog post creation of Tesla Financials that will offer companies leases for Model S's

Tesla Business Leasing | Blog | Tesla Motors

As I wasn't sure if this should go under short or long term thread I created a new one and after we debate a bit the mods can merge it to one or the other

AlMc · Apr 8, 2014

Mario. Just posted this over at 'social chat' and 'catalyst' threads. I am positive that I would have used this if it had been available at the time of my purchase. I am positive it will help with long term demand. Since we are supply constrained I am unsure if it will help in the short run for TSLA.

Rifleman · Apr 8, 2014

AlMc said:
Since we are supply constrained I am unsure if it will help in the short run for TSLA.

I think it will help in the short run, not because it will allow for more sales right now, but because it help to assure that Tesla remains supply constrained for the foreseeable future. The essential garantee of selling as many Model S's as can be produced will help support a higher stock price.

aznt1217 · Apr 8, 2014

Start the clock for : time till a bear uses this to say that there isn't enough Model S demand . Lol

AlMc · Apr 8, 2014

aznt1217 said:
Start the clock for : time till a bear uses this to say that there isn't enough Model S demand . Lol

Exactly. And while I don't agree with the bear position on this I can see that they can make a legitimate case. While PM is volatile and does not always predict the direction of TSLA for the day. It, along with foreign markets being down overnight might combine for a red day

ItsNotAboutTheMoney · Apr 8, 2014

aznt1217 said:
Start the clock for : time till a bear uses this to say that there isn't enough Model S demand . Lol

LOL.

I think is great to see this addition. We've had multiple posters here have issues because they have to get a company car through a leasing company. With Q2/Q3 seeing an increase in cell supply that will allow for a bump in production it's a good time to get it going.

From the description in the blog, it also sounds like they've emphasized the simplicity, which, of course, is a benefit of the direct, fixed-price model.

Curt Renz · Apr 8, 2014

Mario Kadastik said:
Tesla has just announced on a blog post creation of Tesla Financials that will offer companies leases for Model S's

Tesla Business Leasing | Blog | Tesla Motors

I forwarded that leasing notice along with more Model S information to a number of executives, realtors and other professionals that I know. Readers here may want to do the same.

TSLAopt · Apr 8, 2014

Curt Renz said:
I forwarded that leasing notice along with more Model S information to a number of executives, realtors and other professionals that I know. Readers here may want to do the same.

Great at idea Curt! that is good activist investing advice , I am dong the same.

surfside · Apr 8, 2014

given we are in the investors section, i thought it would be useful to post the FAQ from tesla's investor relations site with regard to tesla finance (some interesting details here):

We published a customer-focused blog post announcing our new captive finance company, Tesla Finance LLC, and its initial product offering, a leasing program for small and medium sized businesses. Here is further information for investors and analysts about this announcement.

What is Tesla’s strategy in starting Tesla Finance? – We believe that a captive finance company is a natural extension of our strategy to offer great customer experience, including financing products important to customers. Consistent with this, Tesla Finance will offer a financing product that customers have been requesting but that has not available from our bank financing partners: a true leasing product intended for businesses. This will round-out the portfolio of financing options available to Tesla customers. This leasing program will be offered alongside traditional installment loan programs currently offered by our bank partners.

How will this program affect Tesla’s capital structure? – The leasing program is targeted just at small/medium-sized businesses and their owners, so volume is expected to be somewhat limited.

The leases will be funded with a combination of equity and a warehouse financing facility that will be announced shortly. Given Tesla’s solid cash position, strong cash flow from operations and the poor returns available on cash equivalents today, it makes sense for Tesla to use a portion of this cash to support growth by creating Tesla Finance now.

Should the program grow, it would be reasonable that additional layers of warehouse facilities would be added and eventually replaced with private and/or public asset-backed securitization transactions commonly utilized in the industry. Tesla has established the legal structures to support securitization transactions, but that approach is volume driven and not necessary until we begin to deploy Tesla’s capital to support the Gigafactory and Gen III initiatives in earnest.

How will Tesla account for the leased vehicles and how does that compare with other car companies? - Within the automotive industry, automakers typically sell their vehicles through a franchised dealer network in which sales to the independent dealers represent a full sale for GAAP purposes. Later, a portion of these same vehicles may be financed by the automakers’ financing affiliates where they also record the related leasing revenue. Since Tesla sells directly to customers, we cannot recognize full sales revenue for vehicles delivered under our captive leasing program. Therefore, we will not adjust our financials (GAAP or non-GAAP) to show leased vehicles as sold vehicles like we do for the Resale Value Guarantee program in our non-GAAP financials.

What info will Tesla disclose on these transactions? - To facilitate comparability with other automakers, we will include a supplemental quarterly and YTD table that summarizes the aggregate price of vehicles leased by Tesla. This should allow investors to evaluate the velocity of our vehicle business.

How will gross margins be impacted by the program? - There will be no material impact to our gross margin in either GAAP or non-GAAP financials.

surfside

vgrinshpun · Apr 8, 2014

My musings on the subject, cross-posted from the Short Term TSLA Price Movements:

vgrinshpun said:
I think that a full potential of the Tesla business leasing and forming Tesla Finance as a TSLA catalyst is yet to be realized.

The business lease program, although it could generate additional demand, would put a damper on the income that TM would be able to realize immediately upon signing the business lease: since it will be financed by Tesla, the deferment of income would be on both GAAP and non-GAAP basis, with the cash flow, unlike the leasing for individual program, taking a hit because this would be real lease, not a pseudo-lease. But, as we learned, the briliance of Tesla strategy covers all facets of the company, from engineering, manufacturing and ("non") marketing, to financing. As stated by the Baird analyst, in order to combat the cash flow hit, Tesla Financial is also introducing asset-backed securities, which would allow to realize the cash sooner, if not immediately on sighning the lease:

Additionally, the option of introducing asset-backed securities in the future could provide TSLA with another source of low cost capital. Securitization would also allow TSLA to receive upfront cash for its leases which could be deployed for the construction of the Gigafactory or for the production ramp of the Gen III vehicle.

TMC members with financial background would be welcome to comment, as it is an engineer speaking here, but I believe my reading is correct. I think this is unexpected by a wider market audience and is a big news.

http://www.streetinsider.com/Analys...usinesses+a+Positive,+Baird+Says/9362172.html

This Bloomberg article linked by TSLAopt is essentially another look on what Ben Kallo of Baird was attributed to say by the article linked in my original post. The source for both is actually posted on Tesla Motors Investors FAQ page (Tesla - Investor FAQs ). It kind of confirms my reading of the excerpts from the Ben Kallo notice: "Since Tesla sells directly to customers, we cannot recognize full sales revenue for vehicles delivered under our captive leasing program. Therefore, we will not adjust our financials (GAAP or non-GAAP) to show leased vehicles as sold vehicles like we do for the Resale Value Guarantee program in our non-GAAP financials"

It also telegraphs that TM expects to have an EXCESS of cash from strong positive cash flow until they will begin deploy capital for the Gigafactory and Gen III. So in the stroke of brilliant financial strategy, rather than get poor interest income from the excess cash they will use it to finance Tesla Finance, until the time when such capital deployment (Gigafactory and Gen III) will be required. At that time TM will use securitization, or warehouse financial facility, to free the capital deployed for Tesla Financial. This is pure financial brilliance:

"The leases will be funded with a combination of equity and a warehouse financing facility that will be announced shortly. Given Tesla’s solid cash position, strong cash flow from operations and the poor returns available on cash equivalents today, it makes sense for Tesla to use a portion of this cash to support growth by creating Tesla Finance now.

Should the program grow, it would be reasonable that additional layers of warehouse facilities would be added and eventually replaced with private and/or public asset-backed securitization transactions commonly utilized in the industry. Tesla has established the legal structures to support securitization transactions, but that approach is volume driven and not necessary until we begin to deploy Tesla’s capital to support the Gigafactory and Gen III initiatives in earnest."

Tomorrow is looking good.

hershey101 · Apr 9, 2014

surfside said:
How will this program affect Tesla’s capital structure? – The leasing program is targeted just at small/medium-sized businesses and their owners, so volume is expected to be somewhat limited.

The leases will be funded with a combination of equity and a warehouse financing facility that will be announced shortly. Given Tesla’s solid cash position, strong cash flow from operations and the poor returns available on cash equivalents today, it makes sense for Tesla to use a portion of this cash to support growth by creating Tesla Finance now.

Should the program grow, it would be reasonable that additional layers of warehouse facilities would be added and eventually replaced with private and/or public asset-backed securitization transactions commonly utilized in the industry. Tesla has established the legal structures to support securitization transactions, but that approach is volume driven and not necessary until we begin to deploy Tesla’s capital to support the Gigafactory and Gen III initiatives in earnest.

I'm not sure what this means. Can someone explain what "wharehouse facilities" are? I looked at the article but didn't really understand it.

surfside · Apr 9, 2014

hershey101 said:
I'm not sure what this means. Can someone explain what "wharehouse facilities" are? I looked at the article but didn't really understand it.

my assumption is that it will be a loan facility at the tesla finance subsidiary (hence them saying it will be financed with equity AND a warehouse financing facility).

surfside

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Tesla leasing for companies

Mario Kadastik

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AlMc

'When the music is on...you gotta dance' (Go Elon)

Rifleman

Now owns 2 Model S's!!!

aznt1217

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AlMc

'When the music is on...you gotta dance' (Go Elon)

ItsNotAboutTheMoney

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Curt Renz

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TSLAopt

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