Tesla has defied all laws of probability.

It's incredible the seemingly turnaround out of nowhere that they've

pulled off despite all of its issues around Elon's behavior.

This company is fundamentally changing how people move around.

But now it may face its biggest challenge yet as coronavirus crushes

the global economy. In the U.S., GDP retracted at a rate of 4.8

percent in the first quarter of 2020, and the Federal Reserve warned

the second quarter could be even uglier.

We're going to see economic data for the second quarter that's worse

than any data we've seen for the economy.

More than 33 million people have filed for unemployment since March,

which means that at least 33 million people will most likely not be

buying a new car anytime soon.

Anytime there's a con traction to consumer confidence, consumer

spending, automobiles are one of the first things to take a big hit.

And the pandemic has shut down production for all U.S.

automakers. Tesla CEO Elon Musk clearly feels the pressure.

BLEEP. Outrage, outrage.

This frustration is boiling over when you have that much asset

concentration in one factory, it's producing 70 percent of your

vehicles. This shutdown is really crippling.

So how can the electric carmaker get through this economic standstill?

Here's a look at why some experts say Tesla may be better position

than other U.S. automakers to survive.

Tesla was founded in 2003, so it already survived the Great Recession,

but it was different times for the then private company.

In 2008, it was just starting to deliver its first car, the Roadster.

The luxury market actually typically offers better than the mainstream

brands because people with discretionary spending money can continue

to purchase a new vehicle.

Meanwhile, the big three were getting a bailout in the midst of a

financial crisis and a recession.

Allowing the U.S. auto industry to collapse is not a responsible

course of action. The bailout of the auto industry back in 08', 09'

was considered very necessary because it saved thousands

upon thousands of jobs.

So if you allow GM, Ford, Chrysler to go

bankrupt and fail, it would have a ripple effect across the entire

U.S. economy. Prior to the Great Recession, a lot of automakers kind

of got into some hot water because they were overproducing.

There were some automakers that were just selling cars just to sell

cars just to satisfy these production contracts.

And of course, that's not really a great way to do business.

So when the Great Recession came along, all of that essentially

collapsed. Tesla on the other hand, never really had that problem.

The industry is in a much better position to deal with an economic

downturn now than it was then, simply because it doesn't go in

already being well over capacity and having a lot of inefficient

production issues.

And I think Tesla was probably never really at risk of those issues

because they've been a relatively small volume maker.

I think it's much easier for Tesla to quickly moderate and modulate

its production capacity during a downturn.

He's got the flexibility to add a tent, which means he's got the

flexibility to remove a tent when necessary.

But this downturn is unlike anything that has happened before.

And the timeline for the recovery is still unclear in terms of like

some of the big events that people have compared it to, things like

9/11. There is an immediate recovery the month after 9/11 in October.

We had the highest seasonally adjusted annual rate of the automotive

industry ever. And then when we look at the recession, it took years

to recover from that.

It was such a slow recovery that this doesn't feel like it's the same

either again. So people keep wanting to draw parallels, but just

haven't seen a good line in terms of like where this actually falls

in the spectrum. What's been fascinating about this particular

circumstance is that the car industry, as well as the economy in

general, was doing very well.

It's been doing well over the last few years, selling about 17

million new cars a year, which is a very high number.

So the shift in momentum, unlike the previous economic downturn, that

happened relatively quick in most people's opinions.

So that's a big difference from the last time around.

And while a specific bailout for the auto industry is not part of the

two trillion dollar coronavirus relief package, nothing is off the

table yet. There's already talk of doing a very specific automotive

financial assistance program from the government.

12 years ago, we had the cash for Clunkers.

There's talk of doing the same thing coming out of this.

And I think the automakers might be very much dependent on that to

keep them financially stable.

We don't necessarily see it for Tesla.

We don't think they're going to need it.

But for for the Detroit three, we see a high risk of another bailout,

the worst month in decades in terms of auto sales in April.

We think this weakness and new vehicle sales is going to last for some

time. So it's going to get ugly.

For an idea of whether Tesla is financially stable enough to get

through this, let's look at its first quarter earnings.

All of the major automakers had a rough first quarter, but Tesla was

able to eke out a 16 million dollar profit propelled by strong demand

for its Model 3.

This surprised some investors.

It was a much better than expected quarter.

Their automotive gross margins, most importantly, were very strong,

about 25 percent for the quarter.

So they're really improving the profitability of the auto business.

A lot of that reflects the new factory in China, which started up

late last year and is still in the ramp up phase.

But that really helped their automotive margin for the quarter.

Tesla said it delivered around 88,400 cars in Q1, including the first

deliveries of its highly anticipated Model Y crossover SUV.

Tesla didn't necessarily deliver as many vehicles as we perhaps

thought that they could.

This was gonna be their big celebration quarter.

They had just got online in China, in Shanghai.

It's just starting to produce the Model Y at a much earlier pace than

anyone expected.

It would have been a really great success story for them, if not for

the global events that completely overshadowed everything that they

had going on in Q1.

Tesla reported $8.1 billion dollars in cash flow, It has a

balance sheet that on paper can survive six months of a shutdown.

But in practice, GM, if we're if we shut the economy down for that

lie, we all know the narrative is very dark at that point.

If you look at the $8.1 billion of cash, if you go back 12

months, they had less than three billion of cash a year ago.

So they've generated significant amount of free cash flow over the

last four or five quarters.

They also did an equity offering in February.

That's also helped their their cash balance.

Musk raised two billion dollars in a stock offering before the

epidemic in China expanded into a global pandemic.

They group them as the tech company.

But at the end of the day, they build and sell vehicles.

And that is a very capital intensive industry.

And unlike GM, Ford and Chrysler, which are actually trying to ramp

down production and closed plants, Tesla is in the process of

building that up. So they have to spend a lot of money and they're

doing it very quickly.

The way they got their China plant up and running was remarkable how

quickly they're able to do that.

And I think they're looking to do the same thing over in Germany with

their new Gigafactory.

So the spending is a worry for Tesla.

We think the most prudent thing they could do here would be to do

another equity offering, because it's not clear how long this

downturn would last.

This new factory in Germany is going to be about twice as expensive

to build as the new China factory.

And they've got it to spending roughly three billion a year in

capital expenditures over the next three years.

They're going to be spending a lot more than they have in the past.

Tesla's got a certain amount of capital, but they're not necessarily

profitable. So they're burning capital and losing money even when

everything's running normally.

They're going to burn through that much quicker if their sales drop

off. But you saw the numbers that we just got for Q1 sales from

Tesla, and they were very strong.

So it's indicating that, again, they were able to be somewhat

resilient. I would see Tesla having as much or more chance to get

through this difficult timeframe than any of their competitors or any

of the domestic automakers.

Tesla stock has been a wild ride for investors, but some think it does

put Tesla in a better position than other automakers and could be a

lifeline. Their most valuable currency is the stock so they can

always do equity offering.

They've found no shortage of willingness on the part of investors to

fund the company. They looked very highly upon when it comes to Wall

Street and I don't think anyone's really going to let them fail.

Tesla trades at roughly 10 times the earnings multiples as a General

Motors or Ford or Fiat Chrysler.

Tesla's market cap exceeds those three automakers combined, which is

fairly unbelievable considering that its annual vehicle sales are a

fraction of those companies.

But some are concerned that Elon Musk's tweets could get the company

in trouble again. Last week, he tweeted that he thought Tesla's stock

price was too high.

Stock now down almost seven percent.

It was around 750 when he tweeted that the stock was too

high. Now it's at around 725.

You're going to come out and say, my stock that I own is too high.

That's harm to the shareholders.

That specifically is what the S.E.C.

had issue with the first time around.

Exactly. We attribute a lot of Tesla's success and the stellar

quarters that they've had over the last three quarters to Elon Musk

being a lot more focused, spending a lot less time on social media.

And he's he's really delivered.

So the erratic behavior really concerns us.

We don't think that tweet is the end of the story.

That will be forthcoming regulatory and perhaps some legal action

from shareholders. The biggest test for Tesla will be the second

quarter, which is expected to be much worse.

Tesla's main U.S. car plant in Fremont, California, had to suspend

operations on March 24th due to public health orders.

It was able to reopen limited operations.

But when the plant can be up and running at full capacity is still

unknown. Tesla survived actually longer than many when was keeping

production going in the US.

It's going on a state by state basis.

So when they can actually reopen or when other automakers can reopen,

it's still up in the air. And unlike the Detroit automakers, Tesla

doesn't necessarily have to get approval from the United Auto Workers

to go back to work. So they could probably restart, possibly a little

bit quicker than someone like the traditional Detroit automakers.

The company also suspended production temporarily at its battery plant

outside of Reno, Nevada, and at its facility in Buffalo, New York,

where it makes components for its batteries and its charging stations

along with some solar products.

Impacts of these shutdowns are expected to hit Tesla's balance sheet

fully in the second quarter of 2020.

The company has already implemented furloughs and pay cuts and ceased

all but essential contractor and temp assignments.

Tesla ran into hurdles when it tried to open its plant up before

shelter in place restrictions were lifted.

This is fascist. This is not democratic.

This is not a freedom.

Give people back their God damn freedom.

Its new Shanghai factory only closed for about two weeks in February

due to the pandemic. It looks like China might be through this

challenge sooner than other parts of the planet.

And Tesla will be positioned well to take advantage of that.

Tesla sold over 10,000 vehicles in China in March, its highest ever

monthly sales in the world's largest auto market.

But the bulk of Tesla's revenue still comes from the U.S.

Auto data, which crunches monthly auto sales, says the pace of auto

sales in April at 8.6 million vehicles was the lowest monthly sales