Tesla Has Enough Cash On Hands Even If Fremont Needed to Shut Down for Several Quarters, Says Munster

Loup Ventures managing partner Gene Munster said the outbreak of coronavirus and the forced shutdown of Tesla's facilities in Fremont, California, will have only a “little impact” in the long term.

Tesla received conflicting recommendations about its actions during quarantine, from different levels of government. Ultimately, after negotiations with Alameda County officials, Tesla made a commitment to reduce its factory workforce from 10,000 to 2,500. For the quarantine period, the automaker can only support “minimum basic operations”.

Munster said that Tesla's balance sheet is strong enough to withstand a few quarters of Fremont's stop. In February, Tesla raised $2.3 billion in cash, which led to a cash position of about $8.6 billion at that time. In his opinion, it is difficult to predict the amount of quarterly cash inflows without Fremont production. However, since automobile production is associated with high variable costs associated with components and labor, cash losses will be moderate compared to an immediate drop in production.

"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," said Munster.

Despite this situation, Tesla, according to Munster, will still be ahead of the others. Other major automakers, including Ford, General Motors, and Fiat Chrysler, also closed their plants in the United States.

"We continue to believe that Tesla will outpace the broader auto industry's delivery growth rate by 25 to 30 percentage points in 2020."

Munster also believes that Tesla can increase its supply growth rate to 30% in 2021.

Gene Munster wrote in a note:

"We argue that for Elon, it’s not about saving the top line from a bigger hit – Tesla has the money to weather the storm – it’s a principle of his that defines his companies and endeavors. Musk wants to do when others are hesitant. It reminds us of when The Boring Company was told it would take a year to receive a permit to dig under LA, so they cleared the SpaceX parking lot and began digging on their own land that day, or constructing a tent to expand Model 3 production. When this strange period is over the Tesla spirit will continue, and we expect the company’s delivery growth to outpace other automakers."

Feature Photo Editorial credit: franz12 / Shutterstock.com