Reasons why Tesla will come out even stronger after this pandemic
Tesla was ordered to stop production and is closing two of it’s factories, one in Fremont CA and anther one in Buffalo NY. Other car manufacturers have done the same, either under pressure from Unions or by government orders. At this point an outsider may think that Tesla’s situation is similar to other OEMs but in my opinion it’s not. There are two questions I would like to answer in this post:
- Is Tesla positioned to weather this storm better then other car manufacturers?
- Will Tesla increase it’s lead in BEV evolution after at it comes out of this crisis?
I think the answer is resounding YES on both questions. Let’s start with first questions:
- Tesla’s use of capital is much more efficient then any other manufacturer. There are no non-performing assets, they don’t have idling factories or machinery they don’t use. Pierre Ferragu of New Street Research estimates that it will cost Tesla about 700 million per month to maintain the company with no revenue coming it. Other car manufacturers will have to spend a lot more to stay idle.
- Tesla has best debt to cash on hand ratio of all car manufacturers. According to Tesmanian Blog Tesla’s debt level is one of the lowest in the industry.
- Tesla’s long term debt = US$13 billion
- Toyota’s long term debt = US$185 billion
- Ford’s long term debt = US$154 billion
- GM’s long term debt = US$100 billion ( + a US$14 billion unpaid bailout loan)
- Daimler’s long term debt = US$106 billion
- BMW’s long term debt = US$127 billion
- Tesla pays no dividends thus further reducing its cash outflows,
- Tesla is continuing producing cars in China and energy storage products in Nevada. Both operations should be very profitable and they can continue producing batteries in Nevada to be used later when car manufacturing will restart.
- Tesla is a technology company first, it’s business practices can change as quickly as new technology can be developed to reflect the current situation. Example: new “touchless“ ”delivery process where customers can take the delivery of their car without direct human contact.
- At the time of virus crisis, visiting gas stations is not the safest activity one must perform. Charging an electric car in the safety of your own garage is a much better alternative. This epidemic will highlight this as yet another reason why BEVs are better than ICE cars.
Second question, whether Tesla can pull further ahead from the rest of the car manufacturers is even more interesting for me as an investor. Here are some of the reasons I think it will be farther ahead of the pack when the pandemic is over.
- Tesla is a technology company first, it’s a software company. The Full Self Driving feature that Tesla is working on is critical for future growth of the company. FSD is a software product, software engineers can and do work remotely. I am sure Tesla’s team is hard at work finishing up the FDS software while pandemic is raging on.
- There many other software components in Tesla’s offering. Tesla has shown that they can develop software a lot faster than other companies. All these software projects will be advancing while the rest of the auto industry is standing still.
- Many companies like Waymo and Uber have suspending their self-driving pilot programs due to virus. Tesla however, by the end of the current quarter will sell more than a million cars. All these cars are roaming the world, collecting live driving data. Even if on average each card drives only 10 miles a day, that is 10 million miles collected each day. The gap in the data collected by Tesla vs. the next company with self-driving efforts will only get bigger.
- Most car manufacturers were not super profitable before this pandemic. By now everybody understood that future mobility is electric and all manufacturers were facing the need to invest billions of dollars into development of batteries and electric cars in general. Now, with factories closing and sales plummeting, finding capital to invest to development of BEVs will be even harder. Meanwhile Tesla has the capital and has the best in class R&D talent and process in place. Again the gap in R&D between Tesla and the rest of the manufacturers will only get wider.
- Tesla is not standing still. Expansion of GF Shanghai and construction of GF Berlin continues. Tesla is using this time to greatly expand its manufacturing base. They also scouting location for additional giga factories.
- While overall car market is shrinking, BEV market is expending. With Model Y out in the wild, many content providers will be reviewing the new model, and it looks like the overwhelming number of these reviews and commentaries will be extremely positive. While Tesla production is suspended, demand will continue to increase, only helping Tesla in the long run to increase brand and product awareness.