Tesla could actually be in the best position of any automaker to deal with the coronavirus pandemic

Tesla could actually be in the best position of any automaker to deal with the coronavirus pandemic
elon musk
  • Tesla announced last week that it would suspend production at its California factory as the state locked down to deal with the COVID-19 coronavirus pandemic.
  • Last week, the entire North American auto industry effectively shut down manufacturing as well, an unprecedented move to contain the outbreak.
  • Tesla has around $8.5 billion in cash on its balance sheet, which should be enough to hold out for a market downturn that doesn't last for more than a year.
  • Tesla is also bringing its China factory back online as the coronavirus crisis eases there, meaning that it could make up for lost US revenue.
  • Visit Business Insider's homepage for more stories.

Tesla announced last week that it would shut down all but essential operations at its factory in Fremont, California, just a few hours before Gov. Gavin Newsom effectively locked down the entire state to combat the COVID-19 coronavirus outbreak.


Tesla expected to build something on the order of 400,000 vehicles at Fremont in 2020, so a multiweek shutdown could mean that 30-40,000 vehicles fail to roll off the assembly line.

It's not like Tesla is alone, however; the rest of the North American auto industry has also idled its factories, with few exceptions. The Detroit Big Three - General Motors, Ford, and Fiat Chrysler Automobiles - made the decision last Wednesday, at the urging of the United Auto Workers.

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The US car business hasn't faced anything like this, ever. After the terrorist attacks of September 11, 2001, and then during 2008-09 financial crisis, the plants kept running. World War II found Detroit repurposing car-making to build tanks and planes for the troops, but again, the lines kept moving.

Is Tesla uniquely vulnerable - or the opposite?

tesla factory

You could look at Tesla, with its still-growing electric-car operations and see a uniquely vulnerable company. But because Tesla operates just one US factory, it might be able to weather the shutdown better than some automakers who have to manage the orderly wind-down of manufacturing at dozens of locations.


Tesla also has more cash on its balance sheets than at any point in its tumultuous history, which entailed a narrowly dodged bankruptcy in 2008. The company now has almost $8.5 billion in cash on hand (and access to $3 billion in credit lines), a respectable figure for a carmaker whose footprint is still relatively modest. GM, Ford, and FCA all have twice as much or more - in Ford's case, much more, some $35 billion in total liquidity - but they also have vast operations to deal with through the lull in production.

We already know that 50-day GM strike last year cost the automaker about $2 billion. So doing that math, discounting Tesla's operational costs due to its smaller scale, and the company probably has enough money in the bank to ride out the year. Obviously, if its new Shanghai factory comes fully back online as the Chinese market emerges from its earlier coronavirus ordeal, Tesla should get some offsets there - revenue to make up for a beleaguered topline.

Losses are nothing new to Tesla investors

FILE PHOTO: Tesla China-made Model 3 vehicles are seen during a delivery event at its factory in Shanghai, China Jan. 7, 2020. REUTERS/Aly Song/File Photo

Unlike the Big Three, Tesla has also trained investors to expect huge losses; the swing to profits in the second half of 2019 was a surprise, but the full year still came in negative. The stock price has completely collapsed since a rally earlier this year took it close to $1,000 per share, but it's still trading well above its historic, albeit highly volatile, norms.

GM, Ford, and FCA, on the other hand, have been steadily profitable for the past five years, amid a sales boom in the US that's witnessed a market at record- or near-record levels. That streak could be broken for the first quarter, and when big automakers start losing money, their balance sheets are tested.

Overall, the industry was well-prepared for a downturn, even optimized for a severe one. This coronavirus recession, if it comes, would be outside the scope of their planning, but the Big Three have indicated that it can remain profitable in a downturn in which sales fall to a 10-11 million annual pace, down from the 17 million that's been the pattern since 2015.


In this context, it's best to think of Tesla as a fairly well-capitalized small-ish carmaker that isn't as small as a boutique or luxury-only manufacturer. Porsche's deputy chairman of the executive board, Lutz Meschke, for example, told Business Insider last week that the company has about $3 billion Euros ($3.2 billion USD) on hand, which ought to be fine for a company that sold 280,000 vehicles globally in 2019 and that's part of the massive VW Group.

Tesla, meanwhile, sits in between Porsche and, say, a carmaker such as BMW or Mercedes-Benz in terms of US sales. That's why it needs more cash.

Tesla also has the option of diverting cash to its Chinese operations in the interest of taking advantage of a recovery there; it might actually be able to increase spending there as it deals with the shutdown in the US.

The next two-to-four weeks could be critical. If the pandemic is brought under control, Tesla and other automakers could restart. If shutdowns go on longer, the strain would show. The industry is headed into unmapped territory, and Tesla is the newest member to undertake the march.

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