Tesla Best Prepared To Survive A Global Recession Versus Legacy Automakers

Tesla Best Prepared To Survive A Global Recession Versus Legacy Automakers

Tesla is best prepared to survive a potential global recession versus legacy automakers, thanks to the electric car maker's strong fundamentals and its remarkable foresight. With the C19 virus seemingly yet to peak in several territories across the globe, it would be very challenging for automakers to remain afloat if the worldwide economy takes a severe and prolonged hit. 

Markets across the board are currently feeling the pressures of the C19 pandemic, and this has caused companies from multiple industries to free-fall in the stock market. Together with other tech companies, Tesla stock has lost a significant part of its value, despite the company's US-based sites such as the Fremont, CA factory and the Nevada Gigafactory still being operational. 

Unfortunately, the C19 pandemic does not seem to be at a point where it is tapering off. This makes it very difficult to predict when its effects on the global economy will cease to be felt, especially amidst the ongoing shutdowns happening today, which may last weeks or even months. Tesla bull and Hyperchange host Galileo Russell discussed these scenarios in a recent video, to determine just how well Tesla will fare if a global depression happens. 

Russell noted that with the current pandemic, every single automaker would likely see a massive hit to their business. Tesla will probably experience this in Q1, and perhaps the next quarter too, but so will other automakers. The first quarter will likely be very difficult, since Tesla is dealing with the C19 virus on top of the usual seasonality of the auto business. But despite these challenges, Tesla actually has some aces up its sleeve. 

One of these is Tesla's cash, which it bolstered in February when it held a $2 billion fundraising round. Tesla's capital raise was met by wide criticism from TSLAQ when the investment round was announced, but with the global economy now feeling the weight of the C19 virus, this capital raise is proving to be a stroke of genius. Considering Tesla's usual expenses, Russell estimates that the electric car maker has enough cash to weather a global economic depression for over a year before it exhausts its cash. 

Other automakers will likely not have as easy of a time. Tesla's survival in the event of a global depression will probably hinge on the company's capability to control and optimize its Capex to ensure that its $8.3 billion of cash is spent wisely. Legacy automakers, on the other hand, would have to consider far more factors, and its dealerships will likely bear a lot of weight themselves. This does not even consider the declining value of a petrol-powered vehicle in a potential scenario where fuel supply may be scarce. At the end of the day, buyers of cars will likely go for a vehicle that can gain range for free when supplies are limited

It's likely going to be a painful process, but if Tesla plays its cards right, it could definitely survive a global depression. Other automakers may not be so lucky.  

About the Author

Ma. Claribelle Deveza

Ma. Claribelle Deveza

Longtime writer and news/book editor. Writing about Tesla allows me to contribute something good to the world, while doing something I love.

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