How Tesla Thrives While the Automotive Industry Struggles

Manufacturers News

May 13th, 2020

How Tesla Thrives While the Automotive Industry Struggles

We're now in the middle of the second quarter of 2020. The coronavirus pandemic is still ongoing, and most parts of the world remain on lockdown to at least some degree. For the automotive industry, the mood is still pretty much the same. Most companies, small or large, are suffering. Major car manufacturers are losing money, and many factories worldwide are still struggling to operate. Worst of all, there is still no definitive timeline as to when everything will return to normal. On the plus side, some countries are slowly lifting their restrictions. It means that manufacturers of all kinds will gradually be able to restart their production. 

Still, it seems like most automotive players are suffering.

And then there's Tesla.

Unlike most of its competitors, Tesla has somehow managed to not only survive but also thrive in these uncertain times! At the end of April, Tesla reported its third back-to-back quarterly profit. That means that Tesla has remained profitable before and during the global pandemic.

Maintaining its profitability is a fantastic feat, especially since Tesla had to shut down its factories both in the US and in China, just like most manufacturers in the industry. For now, it's unclear if this streak will continue for Tesla, but so far they've been doing a pretty good job.

To put things into perspective, while Tesla has remained profitable, Ford in the US lost 2 billion USD in just the first quarter of 2020. Worse still, Ford expects to lose a lot more than that in the short-term future. This is a perfect sample of what's been going on in the automotive industry all over the world. In Australia alone, sales of cars in April have dropped by as much as 48.5%! 

Carbon Emissions Credits

Looking back at Tesla's profits, it may come as a surprise to know that not all of it was brought in by its car business. Tesla has also profited a lot from the sales of what's known as carbon emissions credits. 

In the US, car companies are given credits that allow for a certain amount of carbon dioxide emissions. Companies like Tesla, who emit so little, basically have a lot of unused credits that they can sell to their competitors, who may then go beyond the allowable levels of carbon dioxide emission without breaking the rules.

The sales of these credits are big business for companies like Tesla. So big in fact that Tesla pulled in $354 million in its latest quarter, just from selling its credits!

Elon Musk's Tweets: 

Despite all of this good news, Tesla isn't free from challenges. For a while now, Tesla's one and only manufacturing plant in the US has been closed. This is because the plant is located in Alameda County in California, which remains on lockdown. Just recently on the 12th of May, Tesla's CEO Elon Musk tweeted that he would go against the lockdown ruling and reopen the factory. In doing so, he risks getting arrested alongside the employees at the factory. 

Despite complying with the lockdowns so far, Elon Musk has been very vocal and outspoken against them. It seems that as of now, he's had enough and is starting to push back. This flashpoint in the automotive industry is going to be worth watching, especially to see whether it hurts or helps Tesla's streak despite everything going on.

Overall Outlook

Things might be looking up for the automotive industry overall, though. As mentioned earlier, governments are slowly lifting their lockdowns and allowing more factories to begin operating again. That means that factories producing cars and car parts all over the world will also be resuming production soon. As the global automotive supply chain slowly comes back to life, perhaps we can be optimistic about things returning to normal, slowly but surely.

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By Ray Hasbollah