Tesla is in trouble if the coronavirus tanks the US auto-sales boom of the past 5 years - Business Insider

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Tesla is in trouble if the coronavirus tanks the US auto-sales boom of the past 5 years

On one hand, Tesla has one critical advantage over traditional automakers: It doesn't have franchised dealerships to worry about closing or curtailing service if state and federal government declare business restrictions, as has happened in Italy.

On the other hand, Tesla has just one factory in the US, located in Northern California, where the COVID-19 outbreak has been concentrated in relation to the rest of the state. Ford, General Motors, and Fiat Chrysler Automobiles might continue to operate in the Midwest — and Toyota, Honda, Nissan, VW, BMW, and Mercedes-Benz in the South — even if Tesla has to shut down in the San Francisco Bay area.Meanwhile, Tesla also has the least cash on hand of any US manufacturer: about $6.5 billion.

Cash and debt, not equity, are what keep automakers going in recessions, when profits collapse and turn negative. Tesla hasn't ever endured a down cycle as a mature automaker — it was barely selling any vehicles in 2008-09, when the US car market swooned, but it sold about 360,000 vehicles in 2019 — and for its entire 16-year history has been optimized for growth.Growth in the auto industry is extremely expensive, and Tesla is starting more or less from scratch.

Tesla, then, isn't in particularly good competitive shape to weather a recession that lasts more than a few quarters. If COVID-19 retreats, however, and the sharp downturn we're now seeing relents, Tesla would probably be OK. Ironically, the relatively modest size of its business means that it has less to worry about than a massive, multinational carmaker dealing with coronavirus in dozens of local markets.

 

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