Counterparties: Electric car loans

April 3, 2013

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Rising demand for cars is manifesting itself at both ends of the auto spectrum.

Carrick Mollenkamp has a 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.

It’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 it’s rolling out a “revolutionary new finance product” that the company says will turn the “true net out of pocket cost” 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 “really exciting.”

Investors found Musk’s announcement to be a bit wanting; as the Wall Street Journal said it in a headline: “Tweets Lift Tesla’s Shares; Lease Offer Deflates Them.” Part of the tepid reaction had to do with what Joe Weisenthal said were the “ridiculous assumptions” 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 Musk’s proclivity for making bold but ultimately underwhelming proclamations. To paraphrase Musk’s PayPal co-founder Peter Thiel: We wanted a 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 today’s links:

The decade long decline of publishing, visualized in less than a minute – HBR

“Bitcoin is based on mistrust rather than trust, it refuses to take any responsibility onto itself” – Medium

Apple’s learns that in China, customer satisfaction isn’t enough – Bloomberg

Re-activate your Friendster account: the SEC approves corporate announcements on social media – Reuters

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

Wells Fargo issues almost 30% of all US mortgages — and it holds most of them on its balance sheet – WSJ

Real Talk
“An acquisition is always a failure” – Jake Lodwick

Bill Gross admits that he, Buffett, and Soros may just have had impeccable generation timing – Reuters

Are you old enough to legally read online news? – Atlantic Wire

Criminal-justice and education reform: our “most powerful anti-inequality weapons” – Evan Soltas

Masters Of Their Domain
“Seinfeld” has generated $3.1 billion in syndication income since 1998 – FT

Data Points
NYU traffic-injury study has more fun fact than analysis – Streets Blog

EU Mess
The IMF is will contribute €1 billion to the Cyprus bailout – NYT

New Normal
Yelp reviews for prisons – Yelp

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And, of course, there are many more links at Counterparties.

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