Tesla has put the brakes on a sale of over $1 billion USD worth of bonds backed by leases on its electric vehicles (EVs) — reports Yahoo Finance.
The EV maker is reportedly the third issuer of auto-finance securities in the past week to delay a sale amid market instability and fears of even more turbulence. The automotive market is seeing growing inflation, and concerns regarding the global economic fallout from Russia’s invasion of Ukraine have resulted in short-term interest rate benchmarks shooting up.
On Sunday, Elon Musk said Tesla and SpaceX were “seeing significant recent inflation pressure in raw materials and logistics.” Nickel prices in specific have surged in recent weeks, which stands to inflate EV prices in general since most use a high volume of nickel for their batteries.
Wedbush analyst Daniel Ives on Monday predicted Tesla would increase prices in the “next two weeks,” due to the inflationary pressure on the company’s materials. The first of these price hikes from Tesla came later that same day.
Tesla’s bankers had already handed a significant portion of the bonds over to fund managers before the company decided to postpone the sale, according to people familiar with the matter.
Tesla started marketing its ABS offering, dubbed TESLA 2022-A, on March 7, with pricing guidance issued three days later. Most of the tranches went “subject” by Tuesday, said two investors familiar with the deal, which means that they were sold and pricing was imminent. Communication on the deal went silent, however, before Tesla ultimately shelved it.
“Investors are never pleased when they put in all the work to analyze a deal and then it is pulled,” said John Kerschner, head of U.S. securitized products at Janus Henderson.
Tesla has issued seven transactions since its ABS program began in early 2018. The 2022-A collateral pool comprises strong, prime-quality borrowers with an average FICO score of 774, according to presale reports from ratings firms.
According to analysts at Fitch Ratings, Tesla’s managed portfolio and securitizations have historically performed well, with low credit losses, despite the carmaker’s “limited experience” in originating, underwriting, and servicing auto leases, especially through a full economic cycle.
Tesla will likely look to put the 2022-A deal back on the table once the automotive market regains some stability and short-term interest rates have calmed.
