Why Doesn't Tesla Finance Its Own Vehicles?

Why Tesla Isn't Financing Its Own Vehicles

Elon Musk has said many times that interest rates make Tesla vehicles not as affordable as they could be. I've heard the problem statement repeated many times, but haven't heard any solutions, so I'd like to share why Tesla isn't financing its own vehicles and offer some solutions to Tesla to finance its own vehicles and why this is a win/win for Tesla and Tesla customers.

First off, in a rising interest rate environment, homes and vehicles - and anything that requires a loan, become more expensive. Add to that inflation, and owning a home or vehicle in today's day and age is more difficult than ever before. This is why Elon Musk has said this makes it harder to afford a Tesla vehicle, and he is right.

Tesla can't simply finance its own vehicles at a 2% or 3% interest rate right now, when Tesla can take its cash and buy government treasuries in the U.S. and earn 5% to 6%. It's simple math that Tesla is making a better business decision to buy U.S. treasuries rather than finance its vehicles at a lower interest rate.

I don't think Tesla shareholders would be happy to hear that Tesla is financing its vehicles now at 2% interest and no money down. With Tesla vehicles already in high demand, this isn't a good business decision. However, there are solutions that I'll go over now.

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How Tesla Can Finance Its Own Vehicles

All is not lost, however, and Tesla can finance its own vehicles. It just needs to be a win for Tesla as well as a win for the customer. Here is how it becomes a win/win situation.

Tesla can offer a lower interest rate that continues to go lower, similarly as a home mortgage having a lower interest rate if you shorten the duration of the loan or put more money down. Tesla can apply the same principle to its vehicles.

It's a win/win for Tesla to lower its interest rates if the customer puts money down on the loan. On a $50,000 loan for a Model 3 over 5 years, the customer could put $10,000 down and then what is left over is a loan for $40,000. Tesla can offer this loan at 3% instead of 5% or 6% because Tesla is instantly getting $10,000 as a down payment. Tesla can also cap how low the interest percentage can go based on current interest rates if it wants as well, never going 3% below the current 10-year rate.

If a customer wanted to do a 3-year loan with no money down, the interest rate should decrease dramatically because this customer is more likely to pay back the loan. You could still require a 10% down payment minimum or something like that for this particular loan.

Regardless, this is something that I don't think is good for the economy. The FED in the U.S. should not be the deciding factor if people can buy a home or Tesla vehicle - or any large item requiring a loan. With a little flexibility, Tesla can start offering its vehicles at lower interest rates and not be hand tied to whatever the FED is doing with interest rates. I'd love to see companies and mortgages decouple from the FED.

I understand that the primary reason someone gets a loan is that they can't afford money down. Furthermore, I do think there are people who would finance through Tesla if they saw how much they'd save by doing so.

What do you think? Should Tesla finance its own vehicles and offer lower interest rates for down payments and shorter loans?

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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News. Image Credit, Tesla, Screenshot