Tesla Files to Issue Inaugural Auto Lease Securitization

There might be a new entrant in the auto asset-backed securitization market.

Tesla Inc. issued an ABS-15G filing with the Securities and Exchange Commission last week, indicating the electric car maker will establish a Tesla Auto Lease Trust.

The manufacturer is poised to issue a bond backed by leases on its electric cars in an initial 2018-A series, which will pool both commercial and personal closed-end lease agreements. The transaction is set to be underwritten by Deutsche Bank, Citigroup, and Bank of America Merrill Lynch.

The filing did not specify the size of the pool or amount of bonds set to be issued.

The auto lease ABS is expected to price this week with a maturity of February 2020, according to a published report.

The deal is expected to “have no trouble getting sold” amid high demand in the auto ABS market, despite the fact that Tesla is a new issuer, according to the report.

However, there are some concerns from investors given that the electric car maker does not have experience in the auto securitization market in particular. The transaction will also rely on leases from its Model S, whereas typical auto issuers use a more diverse portfolio of vehicles. Investors could ultimately “take the hit” if anything were to go wrong with the Model S, requiring Tesla to recall cars, according to the report.

Additionally, Moody’s Investors Service highlighted in a December 2017 report that residual values for battery-electric-vehicles (BEVs) remain an issue for the auto industry, particularly for auto lease-backed securities.

“Residual value uncertainty, a key risk in asset-backed securities backed by auto leases, is higher for leases on electric vehicles, particularly battery electric vehicles, than for internal combustion engine vehicles,” according to the report.

Tesla did not respond to a request for comment by press time.

Last August, Palo Alto, California-based Tesla raised $1.8 billion in the junk bond market. Junk bonds refer to non-investment-grade or high-yield bonds, which typically carry a credit rating of BB or lower.

While the Tesla Auto Lease Trust 2018-1 may be the manufacturers first foray into auto lease securitizations, it’s not the company’s first asset-backed transaction. Late last year, Tesla issued a $340 million transaction backed by a portfolio of residential and commercial photovoltaic solar installations.

For more content like this, attend the third annual Auto Finance Innovation event, slated for March 7-8, at the Parc 55 in San Francisco. For information, or to register, visit autofinanceinnovation.com.