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There's a new kid in town


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Everybody is talking about Tesla these days, especially when it recently eclipsed General Motors and Ford as the most valuable US automotive manufacturer with a market capitalization near $50 billion. Clearly, great expectations are built in for the new kid in town - Tesla’s soon-to-be-launched electric passenger car - the Model 3. However, few are talking about the potential disruption in the ever-important financing side of the auto industry linked to this new car. That’s because most assume that the US new vehicle market, with a record size of 17.5 million units in 2016 and where 85% of all new vehicles are financed, can easily absorb the production and financing needs of this new entrant. What most don’t realize is that Tesla is effectively seeking to become a big electric fish in a much smaller and shrinking premium passenger-car pond. When the Model 3 jumps into the water, it will send shock waves that will impact to varying degree: new vehicle manufacturers, the used car market, most auto-finance companies, and the asset-backed securities (ABS) marketplace.

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