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Captive Financing Arms: Avoiding Pitfalls In Comparing Tesla's Balance Sheet To Those Of Other Auto OEMs

Apr. 06, 2021 2:55 PM ETTesla, Inc. (TSLA)VWAGY, F375 Comments
Keubiko profile picture


  • Some investors erroneously point to large consolidated debt balances at incumbent auto OEMs to argue they have a balance sheet problem.
  • The vast majority of this debt is from captive financing arms and is more than offset by financial assets and equity cushion.
  • OEMs like Ford are in a much stronger financial position than it appears on the surface and have substantial financial resources to compete with Tesla in EVs.

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This article was written by

Keubiko profile picture
Investment professional.. I write on Seeking Alpha as a personal hobby and to elicit feedback on specific ideas and topics, help organize my thinking, and connect with intelligent people.

Analyst’s Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article represents my personal opinions only. It is not a recommendation to buy, sell, short, hold, or avoid any security. It should not be relied upon for any purpose other than entertainment. Numbers and analysis presented have not been proof-read or independently verified. Assume I am goofball. Despite my best efforts I make mistakes. I do get it wrong sometimes. I welcome comments and corrections. Do not assume I will update or comment further on a name. At the time of writing the author is short a small amount of Tesla Inc. Always consult a financial advisor. Better yet, buy an index fund. Be a good person.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (375)

Hey Keubs, love the MMTLP bashing. I need an explanation of da Bloo Sheetz though.
Please come back to Twitter, you were my favorite account.
Interstellar Investments profile picture
Are the Tesla bears 🐻 here making any money?

My goodness, you could have made money shorting any other speculative investment from a basket of Cathie Wood stocks, the more speculative the better, but yet again you target the hardest stock to short - Tesla, which has already past the bankruptcy risk hump back in 2018 and now produces GAAP profits

The author is a terrible short seller and you need to move on from shorting Tesla

It’s like trying to short Amazon from 2000 (good) and then trying again to do it in 2010 (bad)

Be smarter next time
@Interstellar Investments TSLA is a few tweets away from bankruptcy
mo_strategist profile picture
@Interstellar Investments
Look again at wisdom of Tesla short. . .
Interstellar Investments profile picture
@mo_strategist Wisdom? You could have made money without the losses. Never short the generals ahead of the army.

Short ARKK in the beginning
Short TSLA and AAPL in the end

Remember in a bear market, the weakest foot soldiers (ARKK) get shot first, then the lieutenants (SaaS), and finally the generals (TSLA, AAPL)
if there are 0 ICE cars by 2035 ,FORD still have a 50 B$ or so of assets dedicated to ICE car production. assuming they can still use half of it they would still have to spend Atleast another 50B$(approx capex of TSLA over last ~4 years) to catch up to tesla at this. So thats a 75B$ hole which need to be filled over next 12 years if they want to catch up to where tesla is right now all while operating a business which will make less money due to less demand for ICE cars and not making the same amount of money per car due to many different mouths to feed ( dividends , unions, dealers, politicians, etc.) ... In comparison Tesla is in a much better position.
Bill Cunningham profile picture
@jack spacey
"FORD still have a 50 B$ or so of assets dedicated to ICE car production. "

Do they? Got a link for that? How much will F have invested a few years from now net of depreciation? How much will Fs EV investment be then??
Keubiko profile picture
@jack spacey what a joke of a comment. you think they need to burn down the factory building and rebuild it because of a drivetrain swap? It's simply retooling for a different drivetrain. Are you aware that EVs have doors, frames, tires, brakes, windshields, steering wheels, seats, and so on? Your comment is ridiculous.
Dave Kranzler profile picture
Bro, what you just laid out, despite being laid out clearly and articulately, is beyond the comprehension of the average TSLA shareholder, including Gary Black and especially Goober. Cathie D Wood - god explains it to her.
Keubiko profile picture
@Dave Kranzler Firm, but fair.
Excellent article. Even as an avid Tesla supporter, I always suspected the story of Tesla debt being super small .vs. the massive debt of legacy dyno autos that will kill them, was nonsense. This article lays it down very clearly.

One of the best, lets put shine some sunlight type of article. Thank you author, Keubiko
Jaleb Sherman profile picture
How can I email you, I have a question regarding teslas operating leases receivables
abreik profile picture
@Jaleb Sherman Best shot would be reaching out on Twitter @arbyscares
Cathy Wood profile picture
Very good analysis. You gotta remember one thing. Most of the "Investors" in tesla have no financial education or background whatsoever. they basivally believe everything that fits into their narrative of an ever increasing stonk price. They simply buy the stock cause it goes up and dont care about the "business" Tesla might have. Complete fools but as long as they are not proven wrong by the market this will go on.
No idea how I missed this Tesla article over the past month, but this is excellent. Well done, although I highly doubt the people who need to read this (Musk fanboys) will actually read it.
Keubiko profile picture
@shanley514 I'm not sure many of them can read.
@Keubiko Tough but fair.
Actionable Conclusion profile picture

Mr. K sir, you will be happy to know that there are some very powerful hedge funds led by powerful and influential leaders... and they too are short Tesla.

TSLA.Q watch this video, you have powerful allies.

Keubiko profile picture
@Actionable Conclusion Thanks yes I've seen that funny video. I never use the term "TSLAQ" FYI.
Interstellar Investments profile picture
@Actionable Conclusion and they have been wrong for years, what’s your point?

These hedge funds who are short Tesla are not the brightest, they continue to say “competition is coming”…. Nissan Leaf, Mustang Mach E, Chevy Bolt, Audi Etron, BMW i3, all terrible range, and poorly designed, prone to breakdowns from their multiple facets cobbled together haphazardly from 3rd and 4th tier engineers

Laughable, that you would hang your hat on this level of competition
Actionable Conclusion profile picture
@Interstellar Investments

Did you watch the video? Me thinks not, or you would not be so serious about a point. If you did watch the video... lighten up.

I'll guess its the former?
tenbaggerZ!! profile picture
Great work here. One thing to note: you should probably use the diluted share count of 1.082 bil in calculating Tesla’s mkt cap. I think you used 900 mil shares in this analysis.

Only strengthens the bear view obviously.

Disclosure: I’m short Tesla.
Keubiko profile picture
@tenbaggerZ!! Thanks. Yes I just pulled the basic market cap from Bloomberg as it doesn't matter for purposes of the article.
Great article - easy to follow - you broke complex into simple for those willing to read with an open mind... Like most of the work you do on Twitter as well... Good show - congrats and thanks for sharing your knowledge
Keubiko profile picture
@OtherSideAM thanks OSAM!
gbfraser profile picture
Bravo! Bravo! A very clear and straightforward explanation of the basic accounting of (captive) finance companies. I hope that some of the meme driven (e.g., over-indebted legacy auto companies can't compete with TSLA) TSLA fans take the time and trouble to at least understand this. I'm not hopeful that they will, though. Thank you!
Bill Cunningham profile picture

You nailed it!
Andreas Hopf profile picture
"Even Tesla, despite having most of the EV market to itself to date..."

With around 16% global passenger EV sales share, I find that hard to believe.
Keubiko profile picture
@Andreas Hopf yeah was really just referring to the U.S., and they were operating at scale (Fremont flat-out), and still couldn't turn a profit.
why would anyone value auto stock on balance sheet? this is crazy! even if anyone tries to value auto stock on balance sheet, you are looking at the asset valuation problem, not liability valuation problem, for money's sake! when chapter 11 kicks in, even the captive financing arms are sitting on the creditors' side of table.

when the production line stops, will the rusty factories in detroit or oshawa still have positive net asset value? a professional business valuator will tell you that asset valuation has three valuation method: 1. recovery method; 2. resale method; 3. cash flow method. under cash flow method, the rusty assets of old auto sector has negative net present value because the future cash inflow will be insufficient to match the future cash outflow.
Keubiko profile picture
@zyf Are you a real person is or is someone yanking my chain here?

a real person? someone yanking your chain? what kind of answer you wants to hear?

did i ruin your party? or you just want to hear certain type of comments here?
Keubiko profile picture
@zyf yes, for money's sake!
Actionable Conclusion profile picture

Keubiko, you're a damn good writer. To the point, easy to digest, def better than most.
Keubiko profile picture
@Actionable Conclusion thank you! Much appreciated.
So how much of that Ford debt is used as payout to the Ford family and its stock holders every year? How much of Tesla's debt (if any) is invested in more plants?
Isn't this the whole investment thesis of growth vs dividend stocks?
Keubiko profile picture
@jmbelarmin All of it. All of the Ford debt is paid out to the Ford family.
vooch profile picture

Ford family collected $43 million in dividends in 2019 h/t @Tdot
And I'm guessing the same amount went to James D. Farley & James P. Hackett as well.
TheBaron Investing profile picture
I don't follow Tesla very closely other than for the meme's, I take it that they don't have a financing arm?

Why not? Isn't that a terrific business?
Bill Cunningham profile picture
@TheBaron Investing

" I take it that they don't have a financing arm?"

They do; it's basically their solar leasing and auto leasing arms with many billions of debt. It's not a problem for Tesla though, just like it's not a problem for Ford or GM. The cash flow to pay off the debt comes from the customers making payments rather than from internal profits/cash flow..
TheBaron Investing profile picture
@Bill Cunningham oh, I see, so it's not showing as an issue when they Twitter these comments because their financing arm is relatively small since they sell so few cars?

Bill Cunningham profile picture
@TheBaron Investing

Part of the issue is that they don't break the financing arm separately on their financial statements even though they are in separate subsidiaries, don't report delinquency rates on these assets etc.

It's a bit of "look, over there".
Actionable Conclusion profile picture

Some investors erroneously point to large consolidated debt balances at incumbent auto OEMs to argue they have a balance sheet problem.

(How many times have we heard "the debt is not a problem".... only to find out later that its a big problem?)

The vast majority of this debt is from captive financing arms and is more than offset by financial assets and equity cushion.

(All those people that owe Ford and GM billions, a ton o them are delinquent on their mortgage payments... but don't worry they're our cushion?)

OEMs like Ford are in a much stronger financial position than it appears on the surface and have substantial financial resources to compete with Tesla in EVs.

(As exemplified by the thousands of new hires and new state of the art factories you read about... oh wait that's not Ford and GM that's the other American Brand.)

And what about the pension obligations? How is Ford and GM to manage that? And all those huge old factories geared to make engines, transmissions, exhaust systems... you think those are not soon a liability too?

All these huge liabilities are a heavy wind in the face... even when revenues are rising. But with Ford and GM.. revenues are in decline.

Mountains of debt, declining revenue, and factories designed for the last Century... as they are way late to the party on EV?

Then there is the Chinese. XPEV, NIO, and 100s more plus Korea. The competition is indeed coming, and its not only Tesla that is gonna feel the pain.

Ford and GM? I smell bail outs... you see success.... place your bets.
Keubiko profile picture
@Actionable Conclusion I haven't recommended Ford or GM here. I'm merely pointing out that hundreds of billions worth of financial assets shouldn't be ignored or used in an ignorant fashion.

Everyone is entitled to his or her own opinion, but not his or her own facts.
Apple Dan profile picture
Great article. But way too complicated for the moronic tweeters you cited above.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

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