- Almost the entire world is at
an economic standstill right now.
The stock markets are crashing,
people are social distancing,
and shutdowns across all
industries are happening.
What does this all mean for Tesla
and the EV market in general?
Will they be able to
survive this new recession?
Well, Elon, and specifically Tesla,
have dealt with recessions
and tight dollars before.
And given their experience,
capital and business structure,
I think Tesla's gonna be okay.
But as always, let's
free the data and see.
(upbeat music)
First let's have a look at auto sales
and what the demand is like right now.
Overall, when it comes to
the United States auto sales,
there are predictions of a 20%
decline in the US auto market
and a 16% decline in vehicle production
as life as we know it will be disrupted
by this current pandemic.
And if China is any indicator
as to what's to come,
it could be a lot worse.
They saw a drop of 84% in auto sales
from January to February of 2020,
which is a 79% drop year over year.
So, people aren't really buying cars,
but Tesla may have sort a
way around that as we'll see.
Another concern is if low oil prices
will crush demand for EVs.
There are some worries that
current weak oil prices
could hurt the global EV market.
However, recent articles
make good points on why
low oil prices won't matter
too much at this stage,
especially for big EV markets like Europe
where the biggest driver towards
adoption is complying with
industry requirements
to lower CO2 emissions,
and China where the "Chinese
government aims to develop
"a globally competitive auto
industry in the EV era."
They believe, "Continuous
efficiency gain and cost cutting
along with the EV supply
chain is much more predictable
than oil price fluctuations."
And as EV has become more popular,
especially the Tesla model 3 being sold
hundreds of thousands of time all over
the world now,
this isn't really gonna be as much
of a compelling argument
as it was in the past.
I think low oil prices
are gonna ease the pain
for a lot of folks right now that
are having income disruptions,
but for other folks looking to buy cars
that maybe have a
white-collar corporate job
that isn't as disrupted by this,
it might not be much
of a concern to think,
"Oh, maybe I should buy the
big gas-guzzler versus an EV,"
because we've all done this before.
What happens to oil prices is they go up
and they go down.
So, it's something that,
if you're thinking long term,
the consumers here might actually go EV
regardless of what the oil prices do.
But if low oil prices
aren't going to kill Tesla
in the EV market,
what about the factories
that are shutting down?
Well, Tesla shut down
operations at Fremont,
the factory in California
just a couple weeks ago,
in late March after being considered
a non-essential business under
the shelter in place order
the governor put in.
And the shut down of
this plant is important
because the Fremont
factory is the only one
making cars in the US.
This is also where the bulk
of Model 3's are being made,
and the new Model Y's being made.
But as we've done before,
let's look to China as
an indicator as to what
may happen after things return to normal
with the Tesla gigafactory in Shanghai.
Well, things are getting shaky here,
and it looks like it's not
gonna end any time soon.
In Shanghai, that's not exactly the case.
Recently it was reported that
the gigafactory in Shanghai
is now making 3,000 cars per week after
a brief production
shutdown in February due to
the Chinese New Year and
the Coronavirus in China.
That number puts them at an
annual production capacity
of around 150,000 cars,
which according to Electrek,
is what their goal was in the first phase
of the gigafactory Shanghai.
So where does this leave Tesla?
Where do they go from here?
Well, Elon is under a lot
of pressure right now,
but fortunately for him,
that's kinda where he
prefers to be I think.
And the workers at the factories
are having some issues,
and this is where there's
some real conflict here
and something to really take to heart
and think about more considerably
than some of the other macro
trends we're talking about.
Specifically, workers there are saying
that Tesla risked their
lives by sending them to work
during the shutdown.
And at the beginning of the crisis
here in the United States,
Elon didn't seem to really
be taking it seriously,
kinda down-playing it on Twitter.
But it appears that maybe Elon
has turned the corner on this,
as he recently stated the
factory in Buffalo, New York
would open as soon as
humanly possible to start
making ventilators for
the people and the places
that are in need.
This is in addition to the 1200 or so
that they bought from
China and had them shipped
directly to hospitals over the US.
So he is really kinda
making an effort here,
but in the beginning,
he definitely was a bit skeptical,
which take it for what it is,
maybe that's just Elon.
Maybe you feel that same way.
But as of now,
it seems like they've
really turned the corner
and are starting to
take this more seriously
and do what they can to help everyone.
In response to this,
Tesla is doing what they can,
and they're actually laying
off 75% of the workers
at the Nevada Gigafactory,
which is where they make the
batteries and powertrains.
So, this is in addition
to some of the other
layoffs that are happening around
the other factories and everything,
with the exception of China of course.
And one of the reasons you do that
is so they can now claim unemployment
and start to get paid even
though they're not working.
So that's good and bad, right?
It's gonna help Tesla
with that payroll expense,
and hopefully these people
are gonna get unemployment.
And then when we return to operations,
and this is kinda passist,
hopefully everyone is still able to kinda
to come back and everything will resume
somewhat like it was
prior to this pandemic.
But that begs the question now,
what does this do to the
brand new model coming out,
the Tesla Model Y,
in the ramp that it was
on prior to the shutdown?
Well according to reports from Electrek,
Tesla had started to prepare the Model Y
rear wheel drive deliveries
amid the drop in demand.
So prior to that, they were only doing
the performance in all wheel drive.
Now they're going to the cheaper one
once they open that up on the website,
which by the time you watch this,
may already be there.
They did start deliveries
back on March 13,
and depending on what state you're in,
they have actually canceled that entirely
and stopped doing deliveries,
but other states that's not the case.
So they are still doing that.
So, it's a mixed bag.
Deliveries haven't stopped entirely,
but they have slowed
dramatically in places
where there's a shutdown.
Well, it seems like Elon really isn't into
this downtime thing, forced or otherwise.
But we have learned that Tesla is going to
make the best of it by
implementing a small workforce
that is going to make upgrades
to their production lines.
At the Fremont factory,
Tesla was already planning
some major expansion
to increase it's Model Y production.
So deliveries are still kind of happening
where they're allowed,
but production at Fremont is down.
Shanghai's still online.
All of this just begs the question,
will they survive?
And that is dependent
on their balance sheet.
How much cash do they have here
versus the kind of money they're losing
by operations shutting down?
And if you were riding
the clock a little bit,
it looked like Elon and team were not
going to raise capital back in January,
but in February they did that,
and it puts them in a really
good position right now
to weather this storm.
The cash raised back
then was to strengthen
it's balance sheet as well as for
general corporate purposes.
This turns out to be a very smart move,
according to a lot of the experts.
"But the bulls better not kid themselves."
"If we were ever in a
market like 2008 or 2009,
there are a lot of stocks that
would be repriced downward,
and Tesla is close to them,"
according to one expert.
Now for the time being,
Tesla is fine though,
because in February they
raised $2 billion dollars
at a secondary stock offering
at a whopping $767 dollars,
which is a far cry from
where the stock is now.
This money is just gonna add
to the already $6.3 billion
dollars that they had in
the bank back in February.
So they're looking at a
pretty healthy balance sheet
right now that's gonna get them through
these next few months,
regardless of what operations are doing.
And hopefully by laying off the people,
allowing them to get unemployment,
it's gonna reduce that expense as well.
Probably not gonna show a profit,
they're probably still
gonna be losing there.
But if they can repurpose
some of those folks,
have them upgrade the lines and then
when they come back,
come back even stronger.
This could actually be kind
of a net benefit for them
in the long run.
Now another thing Tesla
has going for them here is
that their sales process
hasn't changed whatsoever.
They've moved to completely
online sales a while ago.
So while we see dealerships shutting down
and no one going to buy cars there,
people can still order
their Tesla the same
as they always could have.
So that's a benefit that their process
was kind of already set up and streamlined
for this type of a situation.
But will people actually go
out and buy one of these?
Generally, they are kind of premium,
high-priced items,
especially compared to
other cars on the market,
and whether or not you even need a car.
You may not even want to be thinking about
buying a car right now
with all this uncertainty.
Well, if you look back to
the last recession in 2008,
you can see that there
were lingering effects
on car-buying attitudes.
Car makers realized that
they would not make it
on volume sales alone,
and they moved to calibrating
their lineups and prices
to appeal to the pickiest of buyers,
those who can afford pretty much anything.
And this leads us to Tesla's lineup,
which is pretty lean
when you think about it.
The average household income
of a Tesla Model X owner
is $143,000 dollars per year.
And with that being said,
they are going to be able
to afford any of these cars
without really worrying too much about
an income disruption for themselves.
And if you rewind the
clock back to 2008 Tesla
when they were just getting started,
and that was a huge financial crisis,
well, they only had one
product available at the time
and that was $109,000
dollar Roadster sports car.
And during this time,
Tesla learned how to be lean,
how to save money and how to really
get things done in a very uncertain,
kind of turbulent financial environment,
especially at a time like then where,
even though people could afford them,
you don't really wanna get the stigma
of buying a brand new $100,0000 sports car
driving around when people
are literally homeless
because of the financial crisis.
So Elon and team have done this before,
and it especially was difficult back then.
But those lessons of how to save,
how to be lean, how to
really trim the fat there,
and kind of keep going
are really gonna pay
dividends here in this
recession that we're now in.
And remember, you're talking about a guy
that would shower at the
YMCA and sleep under the desk
at the office while him
and his brother Kimble
shared one computer to run their website
of their first business.
And then later, after
making a ton of money,
put it all up on the line
and had to borrow money
for rent.
Meanwhile, he started Space X in Tesla
with all the money he made
from the sale of PayPal.
I mean, this is someone that
defines grit and struggle.
This is like a key part of his identity.
So, don't be surprised
if he comes out stronger
than before from this current situation.
So all in, given their huge cash balance
on the budget right now,
the ability to kind of adjust operations
and retool things,
plus Elon's grit and leadership
and kind of seasonedness
in this experience,
I think they're gonna be fine.
Of course, if things did fall apart,
you still have giant
companies like Apple or Google
that would definitely step
in and buy the company
and stop them from going out of business.
So, I feel confident in saying
that they're gonna be fine here.
The question is, how are
they gonna come back?
And really, how is the world
economy gonna come back?
So there's a lot of uncertainty still.
So what do you think about this?
Is Tesla gonna be okay here?
Or is that it?
Are they done?
Drop me a line in the
comments and let me know
what you think.
And as always, don't forget,
when you free the data,
your mind will follow.
I'll see you guys back
here in the next one.
(upbeat music)
Hey.
Thanks for watching the video.
I hope you got something out of it.
If you wanna dig deeper,
I've got another video I recommend
on why I buy used Teslas.
If anything, hopefully it'll help you
understand how to navigate these waters
in kind of uncertain times
and what may be to come
and how you can kinda protect yourself.
So, hope you enjoyed that.
If you did,
please like, share, subscribe
and tell someone about the channel here.
So that's it for now.
Thanks for watching,
and I'll see you back
here in the next one.
(upbeat music)
