20th May 2024

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Business Industry and Financial

Morgan Stanley analyst believes Tesla should establish its own financial service subsidiary

modelx
Credit: Tesla

Adam Jonas, a Morgan Stanley analyst, thinks that now is the time for Tesla to establish its own financial service subsidiary.

Citing historical examples of the General Motors Acceptance Corporation and recent examples such as Ford Credit, Jonas said in a note to investors he believes that the growing inclination towards monthly payment choices and the potential influence of IRA leasing regulations create an opportune moment for Tesla to establish a comprehensive financing solution.

In addition, he asserts that Tesla possesses all the necessary elements to be successful in doing so. With a robust balance sheet and substantial cash flow acting as a solid foundation, coupled with promising opportunities for banking and asset-backed securities partnerships, as well as an extensive downstream network, the company finds itself in an advantageous position to enjoy the advantages of a well-run, cautious profit-generating entity.

Jonas said in his analysis.

We think investors should prepare for Tesla to begin building a large full-scale captive financing subsidiary as the market matures to facilitate the potential IRA leasing rules and several other factors… (via StreenInsider)

The analyst laid out five specific reasons the automaker should jump on the opportunity to create an independent financial arm.

  1. Market Demand – Tesla is targeting multi-million unit volumes, and to support their goals, an in-house financing option will help meet customer requirements.
  2. Competitive Advantage- As one of the only in-house financing options, Tesla could gain market share and sales opportunities.
  3. Data and Service Revenue- With access to residual value data, Tesla could make better leasing decisions and service revenue at the end of the lease terms.
  4. Monetization and Flexibility- Having your financial service would allow Tesla to easily sell used vehicles, enhance customer loyalty and provide payment terms that work for all.
  5. Scale and Partnership Opportunities- Tesla’s strong sales record and balance sheet will make attracting asset-backed security or banking partners easy.

Jonas also confirmed his overweight rating on Tesla stock with a $200 price target. As of yesterday, Tesla (TSLA) closed at $249.83, up 3.55%, marking the 13th day in a row the stock has risen.

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