Tesla holds up well during pandemic
As stock soars, overseas growth offsets U.S. slowdown
In early 2019, Tesla seemed to be stuck in a ditch.
After a steep drop in sales at the beginning of that year, the company was scrambling to raise cash, slashing costs and closing dealerships. It slowed spending on new models, and even analysts who had once been very bullish about the company’s prospects soured on it.
It did not help that CEO Elon Musk was regularly sparring on Twitter with critics and securities regulators alike.
But the electriccar pioneer seems to finally have hit its stride. Despite the coronavirus pandemic, its sales are holding up fairly well, with growth in China and other overseas markets offsetting a slowdown in the United States, where the virus remains a serious drag on the economy.
After it reported a profit and sizable cash balance in the first quarter, analysts have grown increasingly confident that Tesla will come out of the pandemic stronger than automakers that have vastly larger sales and production.
“If you go back a year and a half, the question was, can these guys make it with the kind of capital expenditures they need to do?” said Joseph Osha, an analyst at JMP Securities. “That’s no longer a question.”
On Thursday, Tesla delivered the latest batch of promising news. It said it had delivered 90,650 cars in the second quarter, down just 5% from a year earlier.
It had sold 88,496 cars in the first quarter of 2020, when most of the company’s operations were largely unaffected by the virus.
The decline was considerably smaller than many analysts expected and much better than the numbers reported by established automakers. General Motors Co., Ford Motor Co. and Fiat Chrysler
said this week that their U.S. sales had fallen 30% or more in the second quarter.
The modest drop in deliveries is surprising because Alameda County officials forced Tesla to shut down its main car factory in Fremont in March. Two months later, the company restarted production earlier than it was authorized to do so after Musk criticized stayathome orders as “fascist.”
Tesla appears to have made up for the shutdown in Fremont by ramping up deliveries in China, where it recently began producing Model 3 sedans at a factory in Shanghai. The new plant allowed the company to sell cars in China, the world’s largest market for electric cars, without paying import duties that had previously limited its sales there.
It helped Tesla that China rebounded from its coronavirus outbreak much faster than the United States, where auto sales have been slowed significantly by the pandemic.
Tesla’s stock price, which has soared in recent months, hit a new closing high of $1,208.66 on Thursday, up 8%. In May 2019, the stock was trading around $200, and one Wall Street analyst who had long been enthusiastic about Tesla, Adam Jonas of Morgan Stanley, warned that the price could tumble to $10 if the company’s strategies did not pan out.
At its current price, Tesla has a market value of nearly $210 billion. That’s more than the value of Toyota Motor Corp., which was previously the world’s most valuable automaker, and 3½ times the combined value of GM and Ford.
Traditional automakers sell more cars and earn much more profit than Tesla, which still has not reported a full year of profit since its founding in 2003. But Wall Street has grown increasingly optimistic. Some investors consider Tesla to be at the vanguard of the transition from petroleumfueled cars and trucks to electric vehicles — a change for which they believe older companies like Toyota,
GM and Ford are illprepared.
Fans of Tesla frequently compare it to Amazon, which generated little profit for years as it spent money to fuel rapid expansion that has put it leagues ahead of most traditional retailers in online commerce and logistics. Amazon, Tesla’s fans point out, is now valued at more than $1 trillion while many conventional retailers are struggling or have sought bankruptcy protection.
Tesla has also seemed to overcome problems that hobbled its ability to bring new cars to market and scale up manufacturing. In addition to opening the Shanghai factory, the company has started building a third auto plant, near Berlin. It also started delivering the Model Y, a sport utility vehicle that is expected to sell well because it starts at about $53,000, roughly what comparable luxury gasoline vehicles sell for.
Further, rival luxury carmakers that were expected to provide stiff competition to Tesla with their own electric offerings have for the most part failed to make inroads with buyers. Audi sold just 1,700 of its Etron electric SUVs in the United States in the first quarter, before the pandemic took hold.
Tesla is preparing to accelerate its expansion and is in the early stages of identifying a location for a fourth car factory. The company appears to be eyeing a site near Austin, Texas. In a recent county filing, Tesla said it could begin construction in the third quarter of this year at a 2,100acre site that is occupied by a concrete plant.
Tesla continues to face challenges, however. It still relies on sales of environmental credits to other automakers to generate much of its profit. In a recent email to employees, Musk said breaking even in the second quarter “is looking super tight.”
Many of Tesla’s customers rave about their cars — and many others pine for the luxury vehicles on social media. But experts have dinged the company for selling cars with obvious flaws and quality problems. Last month, Tesla ranked last in a closely watched annual survey of automotive quality by J.D. Power, the first time its cars were included in that report. J.D. Power found customers reported 250 problems for every 100 cars sold, worse than 31 other automakers and well below the industry average of 166.
Further, while sales in China and other overseas markets are holding up, the strength of demand in the critical U.S. market remains unclear, especially as coronavirus cases surge across many states in the West and South, including two big Tesla markets: California and Florida.
In May, when much of California was under stayathome orders, Tesla sold just 1,447 vehicles in the state, a drop of 70% from a year earlier, according to the Dominion CrossSell Report.