In 1919, General Motors founded the General Motors Acceptance Corporation (GMAC) for the purpose of offering financing solutions to its auto customers. Many auto historians cite this forward-looking financial expertise as one of the primary drivers behind the subsequent mass adoption of car ownership, second only to the moving assembly line.
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Considering this historical context, Morgan Stanley analyst Adam Jonas believes that Tesla (NASDAQ:TSLA) is preparing to take a similar approach in order to further penetrate the market.
“We think investors should prepare for Tesla to begin building a large full-scale captive financing subsidiary as the market matures, to facilitate the potential IRA leasing rules (which could become a major driver) and several other factors,” the analyst explained.
These “other factors” include the need for a smoother sales process and the industry norm of offering financing options. Additionally, without a comprehensive financing offering, Tesla risks missing out on potential sales opportunities. Given Tesla’s wealth of data, it is well-positioned to make informed leasing decisions.
Furthermore, Tesla possesses a strong balance sheet and cash flow, acting as a stable foundation. There is also the potential for a banking/ABS partnership and an expansive downstream network.
Considering these factors, Jonas believes that Tesla is favorably positioned to capitalize on a carefully managed and “conservative” profit generator – a financial company, or “finco.”
Additionally, there is a matter of a “leasing loophole” in the Inflation Reduction Act (IRA) that Tesla can take advantage of. “As it is currently written in the IRA, leasing a clean vehicle could circumvent the restrictive battery and metals sourcing requirements, final assembly in North America, as well as MSRP and income limits associated with buying,” Jonas explained on the matter.
So, where does this leave investors? All in all, Jonas rates Tesla shares an Overweight (i.e., Buy), backed by a $200 price target. However, given TSLA shares have more than doubled so far this year, they have now soared beyond that target. (To watch Jonas’ track record, click here)
On Wall Street, TSLA stock currently receives a Moderate Buy consensus rating, based on 16 Buys, 10 Holds, and 4 Sells. That said, the $209.29 average target suggests shares have downside of 18.5% from current levels. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
