Tesla (TSLA, Financial) has successfully raised over $783 million by selling bonds backed by car lease contracts from prime borrowers. This marks Tesla's second asset-backed securities (ABS) transaction this year. The bond sale was spearheaded by Société Générale. The highest-rated tranche of this deal had a coupon rate of 4.827% at the end of the transaction. In comparison, Hyundai's $1.72 billion and General Motors' (GM) $1.29 billion auto loan ABS deals had coupon rates of 4.75% and 4.74% respectively. Tesla's previous $750 million ABS deal in March had a peak coupon rate of 5.53%.
The ABS market is witnessing a surge as issuers rush to complete deals before any credit market disruptions that could arise from the U.S. elections. So far in October, automakers have raised $13.6 billion through securitization efforts, selling loans or leases to institutional investors. This latest bond issuance from Tesla comes ahead of the anticipated release of their robotaxi, amidst the company tackling slowing electric vehicle sales.
Last year, Tesla's ABS issuance peaked at a record $4 billion, but the pace has slowed in 2024, with transactions till now just above $1.5 billion. Since launching its securitization program in 2018, Tesla has entered the market over ten times, though less frequently than rivals like Ford and General Motors, who have each issued over $13 billion in asset-backed bonds this year.
Buyers of such debt face risks due to the potential depreciation in car resale values, which may result from significant price cuts. Lower residual values might force higher fees for lessees, making leases less attractive. Tesla faces unique challenges in this area, as new EV price reductions have impacted the resale value of used EVs. iSeeCars research indicates Tesla cut Model 3 prices by 25%, a significant reduction among EVs this year. Consequently, leasing as a percentage of Tesla’s sales has declined, with analysts linking this trend to weak resale prices.
Fitch Ratings noted in its presale report that Tesla's price cuts, mainly affecting Models S and X, along with weak EV values, could lead to lower residual value realizations. However, Fitch rated the top tranche F1+sf, signaling a high probability of repayment, citing structural protections and conservative loss assumptions.
The latest transaction from Tesla is backed by its active leasing platform, consisting of over 26,000 lease contracts, with a weighted average FICO credit score of 764. The ABS market is seeing a record issuance pace, with deals exceeding $292 billion in 2024, already surpassing last year’s total.
