Tesla to start securitization through vehicle leases
Tesla
As the Big 3 went on strike, costing Ford, GM and Chrysler billions, Tesla is making big money moves in order to spend more. Tesla has started its grandest lease securitization project to date, which is set to redefine its financing strategy. The company is initiating the securitization of a staggering $1.8 billion worth of its electric vehicle leases, paving a path for a sophisticated financial instrument that can potentially foster the company's growth. This massive cash grab may be needed if rumors of the new production advancements are true.
What Does it Mean?
Tesla has started a process called "securitization." This is a financial strategy where they bundle together many car leases and sell them as bonds to investors. Tesla is packaging $1.8 billion worth of car leases in this case. This strategy allows them to get a large sum of money now instead of waiting for the lease payments to trickle in month by month. This is the same as getting a full year of pay; all you did was promise to do your job for the next year.
Tesla is doing this now because it wants to have more money on hand to create more leasing opportunities for potential Tesla drivers. When they sell these bonds, they will get a large amount of money that they can use to offer more leases to customers, essentially expanding their business, Giga Mexico is coming, and potentially boosting their profits.
By turning leases into bonds, Tesla effectively leverages its existing assets to garner immediate liquidity. This strategy entails the creation of financial instruments backed by the value derived from Tesla’s leases, which are then marketed to investors, offering them a structured debt investment with different tranches of risk and returns. The issuance is segregated into various classes, with ratings spanning from Triple-A to Double-A, targeting a diverse risk appetite of the investors, ranging from conservative to moderate. This is a big money move, considering their Master of Coin has stepped down.
An Established Strategy with a Fresh Magnitude
As the financial specialists monitor the dynamics, there is a consensus on the resilience showcased by U.S. consumers in the wake of the Federal Reserve’s aggressive interest rate hikes. Elon Musk has loudly spoken out about the rate hikes and urged the Fed to reverse the massive increases. Now, Tesla can use the hikes to its advantage as more buyers may be looking for a short-term lease instead of a long-term one, which would lock them into a higher rate for a longer period.
This financial maneuver is not new in Tesla's playbook; however, this issuance marks the largest since the inception of such undertakings in 2014. The issuance of these asset-backed securities is designed to drum up about $1 billion, transforming the vehicle leases into a liquid asset that can foster Tesla's business acumen in navigating the corporate finance landscape.
The proceeds from this strategic financial endeavor can potentially fuel Tesla's ambitious expansion plans, serving as an alternative reservoir of funds apart from the conventional corporate bond market. This comes at a pivotal time when Tesla’s share has seen a remarkable uptick, soaring by 124.1% year-to-date.
Tesla plans to create different groups or "classes" of bonds to sell, with some being safer investments and others offering the potential for higher returns. This strategy is designed to attract a wide variety of investors, including those who prefer to play it safe and others willing to take on a bit more risk for a higher reward.
This strategy seems to be well-received as Tesla's share prices have gone up, indicating that investors have confidence in Tesla's plans. Moreover, people are still very much interested in leasing Tesla cars despite the general rise in interest rates.
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After a post on X, Tesla has confirmed that it recently exported its 1 millionth car from Giga Shanghai. That’s a massive number of vehicles from a factory that only opened in December 2019.
Since Q3 2021, Giga Shanghai has been responsible for producing over 50% of global EV production – with the single exception of Q2 2022 – where production fell to about 40% while the factory was retooling. That’s a jaw-dropping figure for a single factory.
1 Million Exports
Giga Shanghai produces Teslas for practically the entire world, including the European, Australian, Chinese, and other Southeast Asian markets. For now, it also produces cars for Canada; however, an upcoming tariff could change this.
Giga Shanghai also celebrated the shipping of 100,000 vehicles to Australia with the 1 million vehicles exported mark. While the majority of vehicles end up in Europe, Australia and Southeast Asia are still massive markets for Tesla.
Going forward, Giga Shanghai, with its continued expansions, will be at or above 1 million vehicles produced per year. A good chunk of these vehicles stay within China, while the rest are exported. Tesla sells on average 40 to 80,000 cars per month in China, depending on the season, with an average of 90,000 cars produced per month in 2024 so far.
Automated Production
This is all thanks to Giga Shanghai’s 95% automated production line. Giga Shanghai is likely one of the most automated and advanced factories in the world, a testament to Tesla’s manufacturing and engineering expertise. Giga Shanghai produces one vehicle every 40 seconds.
We’re looking forward to seeing how Tesla’s expansions and factory innovations continue in the coming months and years.
Giga Shanghai operates a 95% automated production line, enabling a cycle time of less than 40 seconds! From taking 2.5 years for the first million cars to be produced, the second million was done in just 12 months 🚘🪄 pic.twitter.com/IF1w27AFPr
Tesla’s last app update, version 4.37.1, introduces support for critical alerts on the iPhone. These alerts are designed for emergency situations and will override standard notification settings, including the mute switch, Focus modes, and Do Not Disturb. This ensures that owners are notified when immediate action is required, even if their phone is set to silent.
How to Enable Critical Alerts
Activate Dog Mode: Open the Tesla app and turn on Dog Mode.
Main App Screen: After activating Dog Mode, go back to the main section of the app.
Enable Critical Alerts: A new option called Critical Alerts will appear under Live Camera and the quick action icons (Tip: You can add up to 5 quick actions). It’ll state, “Grant permissions to receive critical notifications.” Tap it, and you’ll see a system dialog asking for permission to allow critical alerts for the Tesla app.
Confirm Permission: Choose to allow the Tesla app to send critical notifications, which will grant the app special privileges for sending urgent alerts.
This new feature is likely intended for situations where Dog Mode needs to be turned off unexpectedly. For example, if the vehicle’s battery drops below 20% or if the temperature inside the cabin rises or falls drastically outside of your set temperature, the Tesla app is expected to send a critical alert to the owner, ensuring they are informed right away.
What Are Critical Alerts?
Critical Alerts are a type of iOS notification available only to approved apps, which must meet specific criteria set by Apple. These alerts are designed to be used in emergencies and bypass all standard notification restrictions. This means that regardless of whether your phone is silenced or in Do Not Disturb mode, the alert will play a sound and appear prominently.
By adding support for Critical Alerts, Tesla is prioritizing the safety of pets who may be left inside the vehicle with the expectation that Dog Mode will keep conditions safe. This change makes the app more reliable for alerting owners when immediate attention is needed, ensuring they are always kept informed—even when their phone’s settings would typically prevent other notifications from coming through.
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