Counterparties: Electric car loans
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Rising demand for cars is manifesting itself at both ends of the auto spectrum.
Carrick Mollenkamp has aÂ great long read today detailing the recent surge in subprime auto loans across the country. 6.6 million borrowers took out subprime auto loans from car dealers in 2012, an 18% increase from the prior year. More and more of those loans are being bundled, sliced and sold to yield-hungry fixed-income investors: so far this year, lenders have sold $5.7 billion in securities backed by subprime auto loans, up 13% over the same period in 2012.
Itâ€™s not just the school-bus drivers and local cooks that Mollenkamp interviewed who are behind the auto boom. Electric carmaker Tesla Motors — whose marquee customers include Matt Damon, George Clooney, and Leonardo DiCaprio — announced on Tuesday that itâ€™s rolling out a â€śrevolutionary new finance productâ€ť that the company says will turn the â€śtrue net out of pocket costâ€ť for one of its mid-range Model S sedans to less than $500 per month. It was an initiative that Tesla CEO Elon Musk had been teasing on Twitter for days, calling it â€śreally exciting.â€ť
Investors found Muskâ€™s announcement to be a bit wanting; as theÂ Wall Street Journal said it in a headline: â€śTweets Lift Tesla’s Shares; Lease Offer Deflates Them.â€ť Part of the tepid reaction had to do with what Joe Weisenthal said were the â€śridiculous assumptionsâ€ť underpinning that under $500/month estimate. To get monthly payments down that low, you must:
- Reside in one of six states (e.g., California, West Virginia) that offers a generous incentive for buying an electric car
- Be able to deduct your Tesla as a business expense
- Assume that the hour that you would have spent going to the gas station each month is worth $100
Absent those conditions, the effective monthly cost of the car more than doubles to $940 per month.
The episode also highlights Muskâ€™s proclivity for making bold but ultimately underwhelming proclamations. To paraphrase Muskâ€™s PayPal co-founderÂ Peter Thiel: We wanted aÂ colony on Mars. Instead, we got the option to receive the same trade-in value as a Mercedes-Benz S-class sedan after 36 months. — Peter Rudegeair
On to todayâ€™s links:
Your Daily Outrage
A 25-year sentence for a nonviolent, first-time drug offender – Conor Friedersdorf
“Marijuana possession arrests are a scandal, like Love Canal and the Ford Pinto were scandals” – New Inquiry
And, of course, there are many more links at Counterparties.