Investors should expect Tesla to launch a full-scale financing arm as it tries to capture more of the auto market, Morgan Stanley says

AP Photo/Ng Han Guan

Investors can expect Tesla to soon offer its own options for financing, Morgan Stanley said.
Analysts said it was time for the EV maker to create a subsidiary that finances retail sales.
That could potentially draw in more customers as Tesla wages a price war against its rivals.

Investors shouldn’t be surprised if Tesla were to soon launch its own full-scale financing arm as part of the company’s efforts to pull more customers and grab more share of the electric vehicle market, Morgan Stanley said.

“For years Tesla could sell a car for cash or minimal leasing. But as Tesla looks to ‘acquire’ the next 5 to 10mn, customers require new solutions in a market where 90% are bought on monthly payment,” the bank’s analysts said in a note this week. “We think the time for full-line Tesla Finco has arrived.”

Many auto makers already have a so-called captive financing unit – or a subsidiary financial company that offers loans for retail sales – with firms like Toyota, Honda, and Ford using their respective financing arms to offer financing for prospective buyers.

That’s something Tesla needs to incorporate into its business, especially if it plans on capturing more of the EV market, the analysts said. Financing is now the “norm” in the auto industry. Though most of Tesla’s early sales were done in cash, it’s matured as a company and now has the cash flow to support a finco, the note added. 

Tesla has been waging a pricing war with its rivals, having slashed prices on key models repeatedly in the past year to stay competitive. While that’s propped up demand, the cuts have eaten into Tesla’s profit margins, causing its stock to slip after its first-quarter earnings call. 

Other commentators remain bullish on the flagship EV-stock, particularly as Tesla strikes deals with other auto makers to open up its charging network. Tesla shares traded at $254.50 on Wednesday, up 136% from the start of the year.