How was Tesla so Successful During the Global Pandemic?

Tesla doesn’t always play by the same rules as normal automakers, and nowhere was that more evident than the global pandemic.

At this point, we all know the score – in 2020, the world shut down, with factories closed and entire industries on standby. And what does no one do when they’re afraid to leave the house? Drive cars.

To no one’s surprise, COVID-19 clobbered the auto industry. While consumer dollars shifted to streaming services, widgets, and collectibles, all of which experienced a huge boom (doubly so when the COVID stimulus checks arrived), they completely abandoned personal transportation.

And the result was predictable – factories were shuttered across the nation, leading to ghastly unemployment figures (not seen since the Great Depression) and trifling sales. In July, alone, new vehicle sales fell by 25% compared to 2019. And the pain was just beginning.

In many respects, we never fully recovered – no one was buying cars, so the majority of semiconductors went towards small consumer devices, and when the pandemic finally abated, the auto industry found itself at “the back of the line.” So began the global chip shortage, and no industry suffered like the auto sector.

A quick glance at the vacant lots in any random car dealership confirms that they’re still dealing with the fallout. 

But Tesla followed a slightly different path.

For one, the electric automaker actually turned a profit while Detroit was hemorrhaging money. And they didn’t just squeak by -- Tesla more than doubled its third-quarter profits, with 139,300 vehicles delivered, and the value of Tesla shares went up 4.3% to $440.81. 

While the rest of the auto industry hung on for dear life, Tesla posted third quarter net profits of $331 million, 2x the $143 million posted at the same time the prior year, and revenue went up nearly 40% to $8.7 billion.

But how’d they do it? It’s not like Tesla escaped the pandemic completely unscathed. Their factory in Fremont, California did shut down, with reduced staff and the remaining employees, director, and vice presidents and above facing pay cuts of 10%, 20%, and 30%, respectively.

And despite explicit assurances from Elon Musk, himself, that employees could stay home if they wanted to – an email to employees in May said that if "you feel uncomfortable coming back to work at this time, please do not feel obligated to do so," several of these individuals were apparently let go, anyway.

But the fact remains that Tesla weathered the coronavirus storm better than almost every other automaker. According to E for Electric’s Alex Guberman, it might’ve boiled down to the supply chain.

“Tesla, because they are vertically integrated, they’ll move up faster than someone who has tons of suppliers,” Guberman said.

Teslarati opined that “Tesla’s ability to create most of the parts of their cars in-house creates less disruption in the company’s supply chain.” While Tesla relies on external suppliers for windshields, brakes, and a vehicle’s battery chiller, many of the other parts are done in-house at a separate facility. 

A popular theory holds that Tesla relied on sales of CO2 credits to fellow carmakers throughout the pandemic to remain profitable. And it’s certainly possible that consumers simply reevaluated their transportation choices throughout the year and decided to invest in electric (though that theory is mostly speculation).

Whatever the case, Tesla emerged from the global pandemic in far better shape than the breadth of the automotive industry, and with worldwide electric mandates and the natural march of technological progress, the future looks even brighter. 

PSD