Tesla Motors founder Elon Musk tweeted on Sunday about a mysterious new “product” whose release date is Oct. 17. The announcement got the social media buzzing about what that product, “unexpected by most” in Musk’s own words, may be.
Some people think it may be a revamped Autopilot, a better battery pack, or a state-of-the-art infotainment system. But many commenters speculate it probably is either a Model Y prototype or, why not, a new business such as a banking startup.
Tesla product unveiling on the 17th (unexpected by most), followed by Tesla/SolarCity on the 28th
— Elon Musk (@elonmusk) October 9, 2016
Nevertheless, everyone agrees they have no real idea of what the company has in store. But the majority of the votes go to the Model Y prototype. Model Y represents the SUV counterpart of the Model 3 sedan which will hit the nation’s showrooms in late 2017.
But what if it is a banking startup? After all, Elon Musk’s first start-up was an online financial services company, X.com, which later joined forces with Peter Thiel’s Confinity to form PayPal.
Tesla and the Captive Lending Business
Plus, Tesla Motors does not engage its customers in “captive lending” as many other automakers do. And financing is extremely important since car dealers usually sell loans, not cars.
Why is that? When you plan to get a new car you’ll go to a dealership. But the automaker that franchised that dealership usually arranges your financing. Dealerships can also resort to banks for the financing part if the latter offer auto lending services.
The traditional automakers’ “captive-lending” arms often get the money from banks at very low rates and give their customers loans at a significantly higher rate. The business thrives on the difference.
Historically, banks were the first captive lenders since they get the bulk of their cash from credit markets, rather than customer deposits.
As of now, Tesla Motors has only two partners in the financial sector that provide the money for loans. And the company’s cars are rather expensive. Still, the automaker repeatedly praised the arrangement.
Car Sells Set to Rise, and So are Loans
Experts noted that the setup might not be on the company’s liking anymore if annual vehicle production jumped to half a million from this year’s 90,000. It is an eyesore to see someone else cash in all those loan profits.
What’s more, the incoming Model 3 has about 375,000 advance orders. But even though it is the company’s cheapest model (about $35,000), most customers won’t have the money in their wallets.
The problem is the company has already reached a funding limit with one of its two bank partners. So, Tesla may redirect many Model 3 buyers to leasing, which is not so profitable in the long run.
Traditionally, car buyers can come at the dealership with a loan arrangement from an outside financing source. But as the electric car producer wants to direct sales, and boost production, having a financing arm would be a more probable solution.
On Sunday, Musk declined to provide more details on the upcoming product. But since he said it was “unexpected,” a banking startup may not be that surreal after all.
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