Tesla Inc. is currently on the market pre-marketing a $783 million bond backed by premium borrowers' car leases as collateral. The move signals Tesla's increased efforts to enter the recently active market for vehicle lease-backed securities (ABS), with these bonds backed by lease contracts from prime borrowers, allowing Tesla to raise capital to support its strategic goals of continued innovation and market share expansion.
As interest rates fall and market conditions improve, the ABS market continues to heat up, and companies such as Tesla are taking the opportunity to promote more financing.
Issuing asset-backed securities is one of the common financing methods for automakers. Tesla realizes the capital turnover of its leasing business by packaging and selling leasing contracts to investors. When tenants pay monthly rent, investors receive corresponding returns.
This method can not only help companies obtain funds, but also support their long-term development through flexible capital operations. The detailed terms and expected date of the bond issuance have not yet been announced, but Tesla's choice to launch the bond on Thursday is in line with the current overall industry trend, especially in the context of automakers and financial sectors obtaining financing through customer credit.
The offering is part of Tesla's broader financial strategy through which the company continues to seek to fund its rapid growth and technology research and development. Given Tesla's strong brand and large customer base, the bonds may appeal to investors looking to invest in electric vehicles and clean energy.
The deal, handled by Societe Generale, will be Tesla's second such deal this year and is expected to be priced next week, according to a person familiar with the matter.
The person spoke on condition of anonymity because he was not authorized to discuss the deal publicly. In March, Tesla issued an ABS worth US$750 million with a maximum coupon rate of 5.53%.
Neither Tesla nor Société Générale immediately responded to requests for comment.
Similar to other major U.S. automakers, Tesla has been a frequent player in the ABS market, but it has raised capital through securitization less frequently than some of its peers.
In 2022, Tesla's total amount of securitization financing approached US$4 billion, setting a record high for the company.
As interest rates begin to fall this year and bond spreads gradually narrow, ABS issuance in the U.S. debt market has grown significantly, almost approaching the record levels set in 2021. Automakers such as Tesla have also benefited from the trend, prompting more such financings.
Although the bond issuance is in line with current industry trends, Tesla's stock price fell more than 4% during trading on Thursday.