Can Tesla survive automotive – if not broader economic – slowdown?

Elon Musk, he’s polarizing. He should probably go, Or at the very least, he should take a Zuckerberg type-role and find his own Sheryl Sandberg.

But the cars are a different story. It’s hard to, say, watch Marques Brownlee and say to yourself, “Damn, I want that car…”

[I, on the other hand, opted for the Boosted Board as my own electric vehicle]

Anyway, Tesla didn’t begin shipping the Model S until 2012. That means that the company has never faced a downturn in the automotive sector. Nor has it faced a world with rising interest rates. A few quick thoughts:

  • The company has never existed as car sales fell: The challenge becomes – can they still increase sales even as the broader auto market shrinks? Maybe. It’s probably unlikely, but it’s a company that is dependent on brand value. That should help the company weather any economic turmoil, but it’s not a given that fanboy-ish behavior will outweigh broader macroeconomics. Not to mention increased competition in the electric auto space. Electrek wrote recently that Mercedes-Benz is building a new battery factory for electric vehicles in the US. VW wants to sell 1 million EVs in the next seven years, according to The Drive. Meanwhile, Volvo is working wtih Nvidia on a self-driving platform (The Verge). There is no shortage of action in the space, and while Tesla has the competitive advantage right now, it may not always be the case.
The company has never existed in a rising interest rate environment: Speaking of macroeconomics… Big economic trends also have an outsized impact on Tesla. The company has also never existed when rates were higher. Since the company is so dependent on financing, any tightening of financial conditions is only going to put the company under more and more pressure. Which is a big problem when the bills come due: Tesla said it doesn’t need financing in the near future (Business Insider), but the company has three debt payments that will come due between November and March that total around  $1B. The company has around $2.2B in cash, but nearly a billion of that is for Model 3 deposits. If the company does have to raise cash, it’s going to be at a higher rate. For a company already living on the cash flow edge, that’s tough.

But this begs the question, could a downturn in the US economy actually help Tesla? If rates come down as investors seek the safety of US Treasuries, could the company actually tap into cheaper capital? Or would the company’s ongoing (and growing?) risks force investors to demand a premium to shuttle cash Elon’s way?

Again, Tesla has never really existed in a time when spreads between corporate bonds and Treasuries have widened. But on one hand, this is Tesla, which has track record of squirming out of financial jams. On the other, 2008.

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