Tesla Set to Raise $783 Million Through Auto Lease-Backed Debt | This move marks Tesla’s second ABS transaction of the year and is part of a growing trend as automakers seek altern

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Sub-prime lending of collateralized debt? We've seen this one before!

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Can someone TLI5 in what this is?

Oh yeah..different suckers then, some of they now homeless in the city.

Tesla is selling off some significant amount of the car leases they hold to someone else to raise immediate cash to fund their operations. If they held the leases to the end of their payments they would be worth more than 783 million, but they want the cash faster.

Thank you for the explanation

Why though? Tesla has effectively no debt, they've got about $30B on hand, and are banking >$1B/quarter.

don’t want credit risk in a recession

That $30B is not sitting around, its constantly re-invested. This move lets Tesla borrow cash at 5.53% to help fund their operations and/or capital expenditures. Of course they could use their own cash. But that would leave them with less cash to invest and/or force them to sell investments earlier than they might prefer. Additionally, there are usually tax benefits to borrowing money because companies can deduct interest payments, which doesn't apply if they use their own cash. There's also an advantage to having cash on hand. If the business suddenly falls on hard times, it's usually better to have $30B cash + $10B in debt than simply $20B in cash. Especially because it can be much harder to borrow cash when the business is struggling.

I think this move has more to do with Tesla hedging their bets on what these cars will be worth at the end of the lease and less about cash flow. The residual price on these leases could be inflated due to them being purchased during Covid years.

It is common practice, ready to get cheap debt when you sit on cash. Article even says Ford is doing it, but not only that, all of them do it. Toyota sits on 80b in cash and yet has a lot of support tell debt for financing leases.

The article specifically says these are leases from prime borrowers, not sub prime borrowers.

Securitizing assets/future cash flows is incredibly common and not even news worthy. Everyone in the car industry does this; selling these assets reduces risk and brings cash back to the balance sheet.

13 hours and no one has upvoted this! Have one