Consumer Demand for Loans Surges
Consumers Are in the Mood to Borrow Again
Borrowing is heating up again with demand for car loans and leases, credit cards, and personal loans surging. In April loan demand jumped 39% year-over-year and was up 11% compared to April 2019.
This is a stark reversal from a year ago when expanded unemployment benefits and government stimulus checks increased the balances in many consumers’ bank accounts. There was also little incentive to purchase or lease a new vehicle or borrow for an expensive trip during the pandemic. With vaccinations widely available and the economy reopening, consumers are spending again. As a result, demand for loans is climbing.
Lenders Ramp Up Offerings
Lenders have responded to the borrowing trend by ramping up their offerings. Banks tightened their underwriting standards during the pandemic, but some are relaxing those requirements as the economy improves.
The most recent data available is from March when lenders originated 53% more auto leases year-over-year. The balances on new auto loans reached $73.6 billion—up 59% from last year.
Meanwhile, close to six million new credit cards were issued in March—a 32% increase year-over-year. Credit card companies are betting that more originations will lead to additional people carrying a balance on their cards.
Will the Borrowing Trend Continue?
Credit card companies are betting that demand for borrowing will stay strong. This may prove true if recent data are any indication. Customer spending on credit cards at JPMorgan Chase (JPM) was up 17% in May compared to 2019. The bank expects that trend to continue through 2021.
Meanwhile, lenders are issuing more loans to subprime borrowers, which increases the odds of people carrying a balance. About 1.4 million credit cards were issued to subprime borrowers in March alone. That is a 28% year-over-year increase. With stimulus checks drying up and balances on credit cards growing, demand for loans is expected to remain heightened for the next one or two years at least.
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Stellantis to Invest $35.5 Billion in EVs
Stellantis to Open Battery Plants
Stellantis (STLA), a car company born out of the merger between Fiat Chrysler (FCAU) and PSA (PSA), is pouring $35.5 billion into electric vehicles and the software behind them in an effort to become a leader in the burgeoning marketplace. The vehicle maker has set an aggressive goal to spend the money by 2025.
Part of the investment will go to create five battery plants in the US and Europe with an eye toward driving down battery costs. Batteries are one of the most expensive components of electric vehicles, and analysts are expecting battery shortages in the coming years. Vehicle makers including Ford (F) and Hyundai (HYMTF) are investing billions of dollars to shore up their battery production.
Stellantis’ Commitment to EVs
Stellantis is electrifying all 14 of its brands including Jeep, Ram, and Peuegot, giving them battery ranges of 300 to 500 miles. By 2030 the company expects 70% of its European sales to come from EVs while 35% of its US sales will be from electric cars, trucks, and jeeps.
Those targets are among the more ambitious ones in the vehicle industry. Some analysts question the company’s ability to meet them, given that Stellantis has been slower than rivals to embrace and invest in electric vehicles so far. The company wants to overcome that perception and make a statement about its commitment to EVs.
Tough Competition Abounds
Stellantis is betting that the merged company has the scale and resources necessary to compete in the electric vehicle market, which is already crowded. The company expects to realize $6 billion in annual savings from the merger which it will use for its plug-in and battery efforts. In addition to Ford and Hyundai, Stellantis has to contend with Tesla (TSLA), General Motors (GM), and startups like Rivian. That will require a significant amount of resources.
Stellantis needs to show investors its goals are achievable by rolling out a lineup of EVs that match the timeline of its rivals. It will be interesting to see if the company’s big plans will come to fruition.
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Friday Fundings: Glossier, Clearco, DealShare
Direct-to-Consumer Beauty Brand Raises $80 Million
Glossier, a direct-to-consumer beauty company, raised $80 million in venture funding. The Series E round was led by Lone Pine Capital, and included participation from existing investors Forerunner Ventures, Index Ventures, and Sequoia Capital, among others.
The beauty brand has grown over the years and now has more than 5 million customers located around the world. Glossier closed all its retail stores in the early days of the pandemic but is now reopening many of them. In June the company announced it was opening three stores in Seattle, Los Angeles, and London, with plans to add more stores, including one New York in 2022. The funding will be used to continue to scale Glossier’s online and offline sales initiatives.
Funding Startup Raises $215 Million
Clearco, a fintech company which provides funding to ecommerce startups, raised $215 million in venture funding from a Series C extension. The lending platform is open to ecommerce, mobile app, and software companies which have $10,000 or more in monthly sales.
Companies can borrow up to $10 million from Clearco and pay it off with a percentage of their revenue. Clearco plans to use the proceeds from the funding round to expand into Asia and Europe. It also plans to grow its relationships with banks and other funders around the world.
Indian Social Commerce Startup Raises $144 Million
DealShare, an India social commerce platform, raised $144 million in venture funding. The Series D round, which values DealShare at $455 million, was led by Tiger Global and included participation by WestBridge Capital, Alpha Wave Incubation, and Z3Partners. The startup has raised a total of $183 million since launching in 2018.
DealShare got its start selling products directly to consumers on Facebook’s (FB) WhatsApp platform. It targets consumers outside India’s cities and towns, selling them a curated list of items. Funding from the round will be used to expand the company’s operations, enhance its technology, and hire more employees. DealShare is also eyeing acquisitions of startups in the social and gamification markets.