Tesla may be better positioned than other U.S automakers to survive the next recession

Tesla has been known to defy the odds but now it may face its biggest challenge yet as coronavirus crushes the global economy. In the U.S GDP retracted at a rate of 4.8% in the first quarter of 2020.

The federal reserve warns the second quarter could be uglier. More than 33 million people have filed for unemployment since march—which means that at least 33 million people will, most likely, not be buying a new car anytime soon.

So how can the electric car maker get through this economic standstill? Here’s a look at why some experts say Tesla may be better positioned than other US automakers to survive the next recession.

Rear left side of the Tesla Model S. (Tesla)

Lessons from the Great depression

Tesla was founded in 2003, so it already survived the great recession. But it was different times for the then-private company. In 2008, it was just starting to deliver its first car, the roadster when the other automakers where receiving bailouts.

But this downturn is unlike anything that has happened before, and the timeline for the recovery is still unclear.

For an idea of whether Tesla is financially stable enough to get through this, let’s look at its first-quarter earnings. All of the major automakers had a rough first quarter, but Tesla was able to eke out a 16 million dollar profit propelled by strong demand for its Model 3.

In Q1 Tesla reported 8.1 billion dollars in cash. CEO Elon Musk raised 3 billion in a stock offering before the epidemic in China expanded into a global pandemic. Most shareholders are happy with Elon, but some are concerned that his tweets could get the copay in trouble, again.

Recently, he tweeted that he thought Tesla’s stock price was too high.

The market responded negatively as the stock dropped 7% from $750 to about $725.

Factory Closures

The biggest test for Tesla will be the second quarter, which is expected to be much worse. Tesla’s main U.S car plant in Fremont California had to suspend operations on March 24th due to public health orders. It was able to reopen limited operations, but when the plant could be up and running at full capacity is still unknown.

Gigafactory 2 located in New York is a photovoltaic cell factory leased by Tesla subsidiary SolarCity in Buffalo, New York. The factory, owned by the State of New York, was built on brownfield land remediated from a former steel mill. Construction of the factory started in 2014 and was completed in 2016–17 (Bloomberg).

The company also suspended production temporarily at its battery plant outside of Reno Nevada. And at its facility in Buffalo New York where it makes components for its batteries and its charging stations along with some solar products.

Impacts of the shutdowns are expected to hit Tesla’s balance sheet fully in the second quarter of 2020. The company has already implemented furloughs and pay cuts and ceased all but essential contractor and tent assignments Tesla ran into hurdles when it tried to open its plant up before shelter and placed restrictions were lifted.

It’s new Shanghai factory only closed for about two weeks in February due to the pandemic.

Tesla sold over 10,000 vehicles in China in March. Its highest-ever monthly sales in the world’s largest auto market, but the bulk of Tesla’s revenue still comes from the U.S.

EV Competition

Tesla has a key feature that most automakers don’t. Brand loyalty!

Brand loyalty is something that has really shifted generally down for most automakers over the past 20-30 years. There used to be this sense that if you were once a Chevrolet or a Ford or a Chrysler buyer, you were always that buyer. That was true for the previous generations. The current generations have not been very loyal.

Tesla’s got a really strong brand loyalty and a solid fan base. The equity that’s built into the name, as a result, is quite powerful. It’s one of the many reasons why the stock valuation is so much higher than other automakers in spite of a lot of their bottom line financial and production numbers being much lower.

Tesla has a cult following that other automakers wish they had and just because their vehicles are delayed because they missed benchmarks, their loyal following isn’t gonna fall apart.

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