Tesla has enough liquidity to withstand the shutdown of its US production facilities caused by the COVID-19 pandemic.
In connection with the coronovirus outbreak, Tesla suspends work in its factories in Fremont and Buffalo. The company said in a statement:
"In the past few days, we have met with local, state and federal officials. We have followed and are continuing to follow all legal directions and safety guidelines with respect to the operations of our facilities, and have honored the Federal Government’s direction to continue operating. Despite taking all known health precautions, continued operations in certain locations has caused challenges for our employees, their families and our suppliers.
As such, we have decided to temporarily suspend production at our factory in Fremont, from end of day March 23, which will allow an orderly shutdown."
At the Fremont factory, California, some basic operations will continue that support Tesla's charging infrastructure and vehicle & energy services operations.
Work at its factory in Buffalo, New York, is suspended, with the exception of “those parts and supplies necessary for service, infrastructure and critical supply chains,” the company said.
Tesla stresses that it has enough liquidity to withstand the halt caused by the COVID-19 pandemic. Its cash position at the end of the 4Q 2019 was $6.3 billion. In February, Tesla raised $2.3 billion in cash.
“We believe this level of liquidity is sufficient to successfully navigate an extended period of uncertainty,” Tesla said.
The company had available credit lines worth about $3 billion, including working capital lines for all regions as well as financing for the expansion of its Shanghai factory at the end of the 4Q 2019.
Loup Ventures managing partner Gene Munster has the same point of view after evaluating the company's capabilities. In response to the likelihood that the Tesla Fremont factory would be closed, he wrote in a note:
"We see this as a dramatic but temporary shock to Tesla’s production that will ultimately have little impact on the company’s long-term outlook.
Tesla is now well-capitalized and not at risk of running out of money. More importantly, a Fremont shutdown does not change the undeniable truth that the future of mobility will be electric and autonomous and Tesla holds a strong leadership position.
Two years ago, during the Model 3 ramp, Tesla was at risk of running out of cash with only $ 2.5B in the bank. Today, a temporary production shutdown, even one followed by a material decline in global demand for new cars, does not put the company at risk of running out of money.
Tesla’s balance sheet is strong enough to weather multiple quarters of a Fremont shutdown. In February, Tesla raised $ 2.3B in cash, which brought the cash position at the time to around $ 8.6B. The magnitude of the quarterly cash burn with no Fremont production is difficult to predict. That said, since manufacturing cars has high variable costs related to components and labor, the cash burn will be modest relative to the immediate drop in production."
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.