At this time of financial uncertainty due to the COVID-19 pandemic, many economists are forecasting that the recent and sudden halt to consumer spending could strangle the global economy — in ways that haven’t been seen since 9/11 or the 2008 Great Recession. But one major analyst suggests that Tesla [TSLA] is sound through late summer.
Ben Kallo of Baird says that Tesla’s $8.6 billion in cash makes the company likely to be able to weather the virus storm, at least so as to sustain 2 full quarters before liquidity becomes a concern. And those are worst case scenario quarters — quarters without any Tesla vehicle sales.
Barron’s reported this week that Ballo doesn’t expect Tesla to experience the same type of “near-term liquidity concerns” that several other industries have been experiencing. The tourist and service sectors come immediately to mind regarding that crisis.
“While sustained downtime would undoubtedly be a significant headwind, we think the actions are prudent and could actually enable TSLA to mitigate some production and operating costs to better navigate a potentially slower demand environment.”
Why Does Tesla Have So Much Cash On Reserve?
Tesla’s stable cash situation derives, partially, from the company’s $2.3 billion stock sale just a few weeks before the rest of the market scampered to sell their stocks. Moreover, Tesla’s 2019 end-of-year report included nearly $3 billion of unused committed amounts under credit facilities and financing funds.
Ballo suggests there are many reasons to be optimistic about Tesla’s cash flow.
There’s the well placed $1.5 billion of financing for the Shanghai Gigafactory investment. Production continues on in China during the COVID-19 crisis.
Multi-quarter production stoppage could limit capital expenditures at the Tesla Fremont factory in California to improve cash flows.
Support services for Tesla’s electric vehicles and energy businesses are continuing on amidst production suspension.
At the moment, the Nevada battery facility, Gigafactory 1, remains open.
Tesla Is Sound — But How Sound?
Ballo offered a middle-of-the-road Tesla rating with a $525 price target.
“While we are tactically neutral as TSLA works to execute and meet (elevated) investor expectations, we do not believe the stock is a long-term short. Despite (overly dynamic) short arguments since inception, the company has continued to grow and execute (albeit on a slower timeline than projected, at times), and we expect this will continue.”
When the markets closed on March 23, the market summary placed Tesla, Inc. at $434.29, +6.76 (1.58%).
For an even more positive take on how Tesla proceeds out of the CONVID-19 crisis, see “7 Reasons Why Tesla Will Benefit From The Current Crisis — #1 Safety” and following articles.
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