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Zenger
Shanthi Rexaline

Tesla Extends Loan Duration Amid Rising Interest Rates

Tesla CEO Elon Musk attends the official opening of the new Tesla electric car manufacturing plant on March 22, 2022 near Gruenheide, Germany. The new plant, officially called the Gigafactory Berlin-Brandenburg, is producing the Model Y as well as electric car batteries. PHOTO BY CHRISTIAN MARQUARDT/GETTY IMAGES 

Tesla. Inc. (NASDAQ:TSLA) CEO Elon Musk previously expressed concerns about the impact of rising interest rates on car purchases and floated the prospect of cutting vehicle prices even further.

What Happened: The company’s website shows that the duration of a loan extended by a Tesla financier or third-party lender will now be 36 to 84 months. The cap was previously at 72 months.

This suggests that cash-strapped customers can now spread their payments over a longer duration. Since March 2022, the Fed has hiked the fed funds rates aggressively in the current tightening cycle.

But there is a downside to Tesla’s updated payment plan — customers could pay more than their car’s actual value if they agree to the extended-period option.

Why It’s Important: Thanks to the Fed’s successive and aggressive hikes, interest rates are now at a 16-year high of 5%-5.25%. To assess the impact of the rate hikes, the central bank agreed to a pause during its June meeting.

The Fed’s monetary policy setting-arm, the Federal Open Market Committee, is set to meet next week to decide on its monetary policy. The futures market has priced in nearly 100% probability of a 25-basis-point increase in rates to 5.25%-5.50%.

Central bank officials, in their public appearances, have continued to signal that more rate hikes could be on the horizon.

A tesla vehicle is displayed in a Manhattan dealership on January 30, 2020 in New York City. Following a fourth-quarter earnings report, Tesla, the electric car company, saw its stock surge to another record high Thursday that blew past estimates, giving the leading maker of electric vehicles a market valuation of $115 billion. Shares of Tesla (TSLA) rose 10.3%, closing at 640.81, a new closing high. Tesla. Inc. (NASDAQ:TSLA) CEO Elon Musk previously expressed concerns about the impact of rising interest rates on car purchases and floated the prospect of cutting vehicle prices even further. PHOTO BY SPENCER PLATT/GETTY IMAGES

Musk has been a critic of the monetary policy and has, in the past, expressed worries about the Fed pushing the economy into a recession. The futures market has priced in nearly 100% probability of a 25-basis-point increase in rates to 5.25%-5.50%.

Tesla closed Friday’s session down 1.10% at $260.02, according to Zenger News Pro data.

 

Produced in association with Benzinga

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