By on December 17, 2018

tesla model x, Image: Tesla Motors

Tesla’s Dallas-based leasing partner, MUSA Auto Finance, finds itself in a tough spot. Apparently, the business is having trouble keeping up with all the business the automaker is doing. Founded in 2016, MUSA joined up with Tesla in June of this year. However, it has reportedly been unable to finance new leases since October.

According to Automotive News, Tesla caused MUSA’s leasing volume to increase by a factor of six between August to September. As of December, MUSA dealer clients said lease approvals have yet to resume — leaving some dealer partners up a creek without a paddle and some customers without their car. 

From Automotive News:

MUSA’s sudden turn of fortune created snarls that Dave Guttenberg, owner of Automotive Imports, a used-vehicle store in Denver, still is navigating. Even though dealers were told MUSA — known for its automated decision-making software — would honor all leasing contract approvals sent before the October email, Guttenberg says he is owed nearly $180,000 for three pending lease agreements secured before the announcement. He still is waiting for funding — and answers — from the company.

“We didn’t want to have to call customers up and say, ‘We’re sorry — remember that really good lease deal that you were skeptical about? Well, we can’t lease you that car,'” he said.

On October 16th, MUSA issued an email to dealers stating the sudden increase in leasing volume from Tesla “forced us to look closely at how we fulfill our obligations to our core dealers and OEM partner.”

“Effective today, we can no longer approve new applications until we retool some of our business processes,” said the email, signed by Derek Walker, MUSA vice president of sales and marketing. “We’re hoping this is a very short process, maybe a week … Please stay with us. Please believe in us. These are just growing pains for a start-up auto finance company with big dreams that grew faster than anyone expected.”

Sources close to the matter say MUSA simply didn’t have enough money to handle its Tesla partnership after the automaker ramped up production. One anonymous source said the leasing firm is now seeking more investors to fund the business.

Prior to the Tesla deal, MUSA announced it had secured funding capacity of $175 million to originate leases. Michael Buckingham, senior director of J.D. Power’s automotive finance in Costa Mesa, CA, said leasing contracts on pricy vehicles like the Model S and X probably made short work of it. “With the high ticket price of autos, you burn through that rather quickly,” Buckingham said. “They simply ran out of capital.”

Further hampering the situation is a lawsuit from former MUSA president Richard Frunzi. In September, he sued the company for unpaid severance.  He’s seeking 18 months of base pay and benefits, valued between $200,000 and $1 million. He also cited “improper” behavior from CEO Jeff Morgan that “could negatively harm MUSA and its investors.” However, Frunzi’s former employer asserted that his employment was properly terminated, and that he was ineligible for any further severance or compensation.

MUSA has also gone through two CFOs since forming in December of 2016 and doesn’t appear to have anyone filling that position at present.

Fortunately, the finance problem hasn’t been a universal issue. “I don’t have anything negative to say about them,” a representative of Michael’s Auto Sales, a luxury used-vehicle retailer in West Park, FL, told Automotive News. “I got paid on my deals. They stopped originating, but we’ve had other companies stop originating and left us holding the bag.”

Those touched by MUSA’s money troubles are left with two options, according to Buckingham. They can either find another lender willing to buy the unfunded contract or take control of the leases themselves. Ouch. Even if dealers find new lenders, they may not agree to the same terms as MUSA, forcing retailers to subsidize the remainder of the lease — which they’re unlikely to be able to afford.

[Image: Tesla Motors]

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14 Comments on “Tesla Leasing Partner Embroiled in Financial Trouble...”

  • avatar

    Interesting problem to have. Semi-surprised Tesla didn’t partner with someone who had more capital. If they were chasing the lowest bid it looks like they got what they paid for.

    • 0 avatar

      I suspect the “big name” players in leasing didn’t trust Tesla to survive and didn’t want to be stuck with leases on a bunch of orphan cars with plunging residuals. I have to wonder if weakening Tesla residuals and/or a reduction in the credit worthiness of new Tesla lessees are behind the sudden stoppage of new lease deals. I just read a story that the biggest group of reservation holders for the new Porsche EV are current Tesla owners, which certainly could bring great uncertainty regarding future Tesla residuals. Green car buyers seem to be very fickle and not brand loyal. The top trade-in for the Leaf and Volt has been the Prius, and various hybrids and EVs have been among the top trade-ins on Teslas.

      • 0 avatar

        A typical Tesla lessee is someone who can afford to change out cars, not someone holding on tight on a 72 month note. I agree – big money lease companies would prefer to move known vehicles….let someone else take the risk.

  • avatar
    Ol Shel

    So, Musa owns the car? They lease it once(?) and they sell it, where? Can you lease a pre-leased car? (Sorry, I know little about the whole process.)

    If this is a profitable business, why doesn’t Elon do the leasing in-house, buy some plaid slacks and open 420 Used Cars?

    • 0 avatar

      Yes, when you lease a car the finance company actually owns it (vs. a loan, where the finance company merely has a lien, but you personally own the car.)

      At the end of the lease, either you turn the car in, and the finance company then sells it on the used market, (often as a CPO), or you buy it from them at the price agreed upon when you bought the car.

      Leasing is pretty much a way to buy a car with fixed depreciation over the term of the agreement. No more, no less. The monthly payment is then based upon the depreciation (instead of the full value of the car) over the leasing term. For people that trade in a car every few years, it makes it less risky that you’ll be holding the bag for higher-than-expected depreciation. If you tend to hold on to cars, leasing is, on-average, a worse deal, but can still work out if the manufacturer is using leasing to put Cash on the Hood.

  • avatar
    SCE to AUX

    None of this makes sense to me.

    Are people actually leasing used Teslas? Because the only Teslas you can lease today are Model S and X, and that would be through the Tesla store, not “Michael’s Auto Sales”.

    And, since Model S and Model X are the only Teslas available for lease, and their volume hasn’t increased that much, I don’t understand how MUSA’s volume increased 6-fold. Were/are they some sort of basement operation?

    • 0 avatar

      The way I read it is that MUSA has other clients besides Tesla, one of which is a used car lot that was on the reporter’s proverbial Rolodex.

      And yes, they are pretty much a “basement operation” (at least for an outfit that finances luxury cars.)

      Perhaps Tesla used to have other lease funders, but they dropped out, leaving Tesla with only MUSA.

    • 0 avatar

      According to Automotive News, Tesla handed off the lease operation to MUSA and hooked them up with Goldman Sachs to provide the lending. Musk, the potentate of alien dreadnaught level factory automation, was supposedly enthralled with MUSA’s “automated lease process”. So what looked like a lease from the “Tesla store” was sometimes from MUSA with funding via Goldman.

      “Tesla was also eager to shift vehicle financing to outside companies so it could preserve capital for other operations”

  • avatar

    A finance company without a CFO! That’s not a bright red flashing warning sign, no siree!

  • avatar
    Steve Lynch

    I am sure there were big name auto financing companies that would been more than happy to work with Tesla, but then St. Elmo would have been doing what other automakers do and that is a no-no in his book. So subjecting his clients to an unknown, underfunded finance company means he again is a disrupter!

  • avatar

    With Musk bringing (fairly ambitious) things like body shop, insurance, and car delivery transport in-house, I’m surprised they find the need to use a lowbrow leasing outfit.

  • avatar
    Add Lightness

    I am amazed at how the values of used Teslas is being propped up.

    What they want for a 5 yo one is way out of line with other electric or expensive 4 door cars.

    • 0 avatar
      SCE to AUX

      EV resale value is primarily governed by battery degradation, which is lowest on a Tesla, but often horrendous on older Leafs, for example.

      As for the comparison to other expensive 4-door cars, they don’t have the rabid fan base that Tesla does, nor do they perform like a Tesla.

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