Tesla’s fifth auto-lease securitization is also the largest that the battery-electric vehicle (BEV) kingpin’s finance company has sponsored.
The $1.18 billion Tesla Auto Lease Trust 2021-A, baked by lease contracts originated by the Tesla Finance captive arm of Tesla Inc., bests a $940 million Tesla ABS that was issued in 2019 with the inclusion of 24,702 contracts.
The deal is also the first to include Tesla’s mid-range Model Y vehicle (with an MSRP of $54, 119) that makes up 36% of the securitized value of the TALT 2021-A pool, according to a presale report from Moody’s Investors Service.
Tesla is marketing seven classes of notes, including four senior note tranches with credit enhancement support of 29.75%, via Credit Suisse Securities.
Three of the senior-term notes due March 2025 carry preliminary Aaa ratings from Moody’s, while a $113 million money-market tranche bears Moody’s highest short-term rating of P-1.
The largest tranche is the Class A2 notes offering totaling $380 million.
Moody’s expected net credit loss on the deal is 0.5%, unchanged from Tesla’s previous deal
As in most auto-lease ABS deals, one of the main risks for investors is the unknown resale value of vehicles upon lease maturity, when consumers may return the vehicle to Tesla. Moody’s applied a 55% haircut to the issuer’s expected, end-of-lease value to the pool, which is substantially more than other automakers’ lease securitizations due to unusual factors for Tesla.
Moody’s notes that “resale values of Tesla vehicles are exposed to significant technology risk, specifically with regard to battery and self-driving technology.” Batteries that account for 20% of the total cost of a Tesla vehicle, which means that advances in battery technology as new annual models are introduced could significantly reduce the resale values of older battery-electric vehicles (BEVs).
Tesla does not provide an option to purchase the lower-priced models in its lineup, the Model 3 (MSRP of $45,207) and Model Y, at lease maturity.
The company has only limited resale data on the Model S ($84,627) and Model X ($95,426) vehicles since 2016, “and almost no data on off-lease Model 3 and Model Y vehicles” making up 67% of the securitized pool, according to Moody’s. Tesla also provides no purchase options on its lower-priced Model 3 and Y models, as it maintains tight control of the aftermarket for its BEVs.
The contracts have average original terms of 35 months, and seasoning of four months, signed to obligors with a weighted-average FICO of 789 – among the highest of auto-lease ABS deals that have been issued late, including those by BMW and Mercedes-Benz.
About 95% of the leases are scheduled to terminate within 5 quarters, and around 40% are concentrated in California.
The leases are culled from Tesla’s managed portfolio of 66,382 serviced lease contracts that totaled $3.79 billion as of Jan. 31, compared to $2.86 billion the year prior. Delinquencies over 30 days were just 0.48%, and vehicles returned after lease fell to 46.9% from 77.3%.
In its most recent earnings report released, Tesla Inc. reported lower-than-expected profit (80 cents a share) in the fourth quarter of 2020 amid record revenue, below analysts’ consensus and “well below the blowout result a year earlier,” reported Bloomberg on Jan. 27.
But the 4Q results showed the first-ever full-year profit for the electric-car maker, as it built its market cap to $819 billion. The company delivered 500,000 cars globally in 2020, and anticipates beating the 50% growth rate of 2020 this year – putting it on pace to achieve 750,000 deliveries.
