Tesla could be 'recession-resilient,' says Elon Musk

Posted on October 25, 2022 by Peter McGuthrie

As many tech companies are finding ways to cut costs and downsize ahead of an expected recession, Tesla CEO Elon Musk seems confident that the automaker will be okay. While the automaker is unlikely to be completely immune from the economic downturn, Musk doesn’t expect production to slow down at all because of one key factor.

Above: The steering wheel and driver's seat of a Tesla. Photo: Jenny Ueberberg / Unsplash

Musk called Tesla “recession-resilient” during the automaker’s third-quarter earnings call earlier this month, as detailed in a report by The Street. The statement came as many tech executives have warned of a coming recession in recent months, though few of them happen to be in the emerging EV industry, like Tesla.

One such executive who warned against the recession was Meta CEO Mark Zuckerberg. The company has already begun implementing a handful of changes to cut costs, with Zuckerberg even calling the current economic landscape "one of the worst downturns that we've seen in recent history."

"I had hoped the economy would have more clearly stabilized by now," said Zuckerberg in a statement to employees in September. "But from what we're seeing, it doesn't yet seem like it has, so we want to plan somewhat conservatively."

Zuckerberg is far from alone in the sentiment. Amazon founder Jeff Bezos also warned of the recession, and the company has already withdrawn over 10,000 job offers and ended its robotics projects Canvas and Orca.

So what is it that makes Musk think Tesla could be different? Simply put, it’s in no small part because the entire auto industry is shifting away from gas cars to EVs — a movement Tesla has pioneered and is currently way ahead of the game on. And even amidst increasing competition, Musk is confident that Tesla’s main product could help the company outlast the recession.

"To be frank, we're very pedal to the metal come rain or shine," said Musk during the earnings call. "So, we are not reducing our production in any meaningful way, recession or not recession."

“I think the public at large realizes that the world is moving toward electric vehicles and that it's foolish to actually buy a new gasoline car at this point because the residual value of that gasoline car is going to be very low," Musk added.

"So, I think we have to be in a very good spot. But I wouldn't say it's recession-proof, but it's certainly risk-recession resilient because basically, people both have in large part made the decision to move away from gasoline cars to electric cars."

As the EV industry grows, Musk also points to Tesla’s cash flow as a reason the company will likely remain stable, echoing CFO Zachary Kirkhorn’s optimism despite the circumstances. Additionally, the two executives don’t expect a recession to hamper Tesla’s growth plans much with its current cash balance and estimated cash generation.

"I think where our cash balance is, what our forecasted cash generation is, where our margins are as a company, I mean, we can withstand quite a lot of downside before we would have to dig into our capital plans, Supercharger expansion, product lineup," said Kirkhorn.

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Source: The Street

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