Ford or General Motors can last six months
Elon Musk has a chance to demonstrate to sceptics that he has finally gotten an idea of the basics of running a car maker. The Tesla boss appears to have solved most of the production problems that have plagued his company for most of the past three years, at least according to first-quarter sales figures released Thursday. He has also accumulated a good box, which should be enough to last a year without income. It is better than the Ford or General Motors situation. But Musk will only succeed if he has finally mastered how to keep costs under control.
Musk appeared to be making progress toward the end of 2019: Fourth-quarter automotive revenue of $ 6.3 billion exceeded expenses by $ 500 million as both production and sales recovered from a poor start to the year. That seems to have continued in 2020, with production figures exceeding 100,000 vehicles for the second consecutive quarter. This despite the fact that operations have been limited by the virus, which has forced the closure of the California factory.
Tesla has not only stopped him from melting money. Thanks to strong earnings and the surprising sale of 2.3 billion in shares in February, it also accumulates almost 9 billion of cash. That equates to almost half of the total automotive expenses in 2019. A general rule of thumb is that 50% of a car manufacturer’s costs, like wages, are fixed. The rest comes from various production needs, which should be reduced, if not disappear when plants are dormant. Musk should be able to hold out until March 2021. Ford and GM, by contrast, only have six months.
That gives Tesla a significant advantage. And even if the crisis passes sooner rather than later, your best starting position should leave your balance sheet in a relatively better state. But that will only be if your boss understands these fundamentals. If not, its shortcomings in financial management will soon become apparent.