Impact on Tesla of a sudden stock market crash (and economic crisis like in 2008)

[Starno]

Some people say we're not even in bubble territory (even Warren Buffett), while other indicators show that the market is pretty overvalued (PER, through Shiller analysis).

But as it is better to prevent rather than cure.

Do you think Tesla would survive a 2008 like market crash in the next 2 years ?

Why ?

 

[TMSE]

There will not be a market crash precisely because too many people and institutions are expecting the crash. The amount of cash sitting on the sidelines, waiting to be invested, is at historically highest level.

 

[dunginhawk]

yes, because 90% of teslas market comes from people that excel during a stock market crash...if you are paying 75-100k for a car, id hope you are in a position to ride out a crash. If the market crashes, i will buy buy buy buy buy, and come out the other end with enough to buy 5 teslas... thats what you should do
I really dont think a stock market crash would hurt the tesla brand.. it might improve it. just my 2 cents.

 

[Drumheller]

I don't know about the stock market, but the housing market is in a bubble. The same BS that happened before 2008 is happening again in the housing market.

 

[dhrivnak]

Tesla was around in 2008 and it did survive. Barely but it did survive and has thrived ever since.

 

[Johann Koeber]

A stock market correction (aka crash) tends to take all stock prices down, but not all by the same amount. Some recover quicker than others.

TSLA would come down in price. Lately it has been high beta, but I suspect it would do better in a correction than the average stock and recover quickly because the business will not be hurt. The business will keep growing thus overcompensating the general market pullback.

What to do as an investor:
a) do not overextend yourself. Position yourself such that even a 50 % downturn does not wipe you out
b) be ready to buy when the stock is cheap
c) brace yourself psychologically so you do not sell at or near the bottom; instead buy

For many people c) is the most difficult.

 

[neroden]

Some people say we're not even in bubble territory (even Warren Buffett), while other indicators show that the market is pretty overvalued (PER, through Shiller analysis).

But as it is better to prevent rather than cure.

Do you think Tesla would survive a 2008 like market crash in the next 2 years ?

Why ?

Yes.
-- First, they're in a secular market share growth situation; they are eating the market share of gasoline car companies. The general decline in car sales would hurt other carmarkers far more than Tesla
-- Second, they're actually underleveraged compared to the general stock market. Relatively low debt/equity ratio. The standard problem is "return on capital dropped, but interest paid went up", and this isn't as big an issue if you have less debt.
-- Third, they seem to be the lowest cost battery producer. Once Model 3 is producing in bulk and they're showing a profit, they have a lot of room to cut prices a little and keep showing a profit.

They'd probably have to put plans for Gigafactory 3 and 4 on hold. That would be OK.

It's worth noting that TSLA does not trade with the market; it marches to its own drummer. The beta on the stock is almost meaningless, since the R^2 for correlation with the general market is only about 10%.

 

[DaveT]

Do you think Tesla would survive a 2008 like market crash in the next 2 years?

I'd expect almost all high-growth stocks to be down 40-80%... 50-70% for most. TSLA wouldn't be an exception... just like AAPL wasn't an exception in 2008. AAPL declined 60% in 2008, the first year of full-year iPhone sales which were dramatically higher than most everyone was expecting.

 

[MitchJi]

I'd expect almost all high-growth stocks to be down 40-80%... 50-70% for most. TSLA wouldn't be an exception... just like AAPL wasn't an exception in 2008. AAPL declined 60% in 2008, the first year of full-year iPhone sales which were dramatically higher than most everyone was expecting.

In other words our J19 $300's would be toast. I'm sure that Tesla would survive.

The question for J19 option holders is how likely is a crash between now and mid 2018?

 

[TheTalkingMule]

In a 10% correction with coinciding global slowdown, TSLA might dip more than others since oil will likely plummet and a lot of algos have TSLA tied very tightly to oil. Medium and long term.....I don't see how any broad market fluctuation would be dangerous to TSLA.

 

[GoTslaGo]

If there is a recession:

1) People will lose jobs, have less money and spend less. Buy less cars. Use mobility services less.
2) Fed would likely lower interest rates.
3) Smart government would likely borrow during low interest rate environments to boost infrastructure spending.

Point one would hit all car companies. Tesla included. That being said, they don't keep much inventory so there shouldn't be much of an overhang of products. Also people would still need to get around and use temporary mobility services (buses, etc...). Tesla Network would be able to step into this role and provide a base level of income. Likely be easier to use a TN Model 3 to get groceries than mass transit bus. Also, a Tesla would be more attractive to owners because there is no need to buy gas (IIRC gas prices were quite high at that time too).

Point two would allow companies to borrow and fund capital projects. This could benefit Tesla Energy/Solar. Up front expenditures on energy and storage would help businesses (and some people) to help offset monthly costs in energy. So there could be a benefit in this regard.

Point three. If government does use low interest rate environments with high unemployment to get a good deal for infrastructure development, then Tesla Boring could be a huge beneficiary.

If Tesla remained as a car company, IMHO scenario one would be the only scenario that has relevance. But because Tesla is involved with energy and possibly infrastructure, if these grow appreciably they would offset future risks. I believe energy will be there in 2 years. Infrastructure, likely longer.

 

[MostlyStock]

A stock market crash would put Tesla into a death spiral that it probably couldn't recover from. First of all it would tank the value of TSLA stock as it would be valued on current performance and not future expectations as they quickly disappear. Many new car buyers would delay purchases as seen in 2008 crash (a third to half of your retirement would be gone). Tesla would likely have to stop all expansion projects as they could no longer be funded by stock offerings and would not be needed due to the lack of sales. The lack of commercial loans as seen in the 2008 crash would be the final nail in the coffin.

 

[Waiting4M3]

They'd probably have to put plans for Gigafactory 3 and 4 on hold. That would be OK.

If the crash takes the construction industry down with it, it would actually be a good time to build, GGF, stores, service centers, etc. During the 2008 crash some developers built office buildings around my work when the construction cost was low, and return in the stock market was also low, just to let the building sit and wait for the rent price to come back up.

 

[GoTslaGo]

In a recession, companies that are not heavily leveraged will survive, and often do better. Their heavily leveraged competition will die. Further, in any recessionary environment, smart governments will step in to encourage economic activity: cheap loans, low interest, etc... As @neroden pointed out TSLA doesn't have much debt.

All stocks will tank. It's the ability to weather the recessionary storm is what matters. IMHO one of the reasons why so many older companies keep lots of cash on hand nowadays is because of they survived the recession. I recall articles, pre-recession, criticizing companies for keeping too much cash and not using enough leverage: "not maximizing their value for investors they said..."

On a personal level that's one reason why I don't do margin and always keep cash reserves. Same principle. I'm not smart enough to know when the next big down turn is going to happen, or fast enough to respond.

 

[kenliles]

I'm not smart enough to know when the next big down turn is going to happen, or fast enough to respond

Anyone smart enough to know that,
has already outsmarted any down-turn

Hats-off to you sir

 

[Starno]

I'd expect almost all high-growth stocks to be down 40-80%... 50-70% for most. TSLA wouldn't be an exception... just like AAPL wasn't an exception in 2008. AAPL declined 60% in 2008, the first year of full-year iPhone sales which were dramatically higher than most everyone was expecting.

In a recession, companies that are not heavily leveraged will survive, and often do better. Their heavily leveraged competition will die. Further, in any recessionary environment, smart governments will step in to encourage economic activity: cheap loans, low interest, etc... As @neroden pointed out TSLA doesn't have much debt.

All stocks will tank. It's the ability to weather the recessionary storm is what matters. IMHO one of the reasons why so many older companies keep lots of cash on hand nowadays is because of they survived the recession. I recall articles, pre-recession, criticizing companies for keeping too much cash and not using enough leverage: "not maximizing their value for investors they said..."

On a personal level that's one reason why I don't do margin and always keep cash reserves. Same principle. I'm not smart enough to know when the next big down turn is going to happen, or fast enough to respond.

Same with me, I'm convinced that Tesla will thrive beyond expectations on the long run, yet I have enough cash sitting to double my position in Tesla.
I'm investing only what I can afford to lose. And make sure to keep enough cash to live for 6 months to 1 year with no income.

 

[strider]

There will not be a market crash precisely because too many people and institutions are expecting the crash. The amount of cash sitting on the sidelines, waiting to be invested, is at historically highest level.

Please do not use the phrase "cash sitting on the sidelines." It is just straight-up, completely wrong. All shares of stock are owned by someone at all times. Cash cannot be "taken out" of the stock market for the simple fact that if one person sells another must buy therefore making it a zero sum game (except for IPO's, new stock grants, and bankruptcies).

As for the OP's question, I think it depends on the nature of the downturn. Tesla will continue to need access to capital markets to fund ongoing operations for the foreseeable future. If the downturn is due to a banking crisis that could chop TSLA as their cost of capital could rise precipitously.

 

[Starno]

I think worst case scenario is Tesla get acquired by Volkswagen or Daimler for 2/3 of their price : something like 20-30 billion dollars. Because they can't sustain their operating expenses

But I don't think Tesla will ever get completely bankrupt and get to 0 without anyone wanting to purchase them, they have too much technology expertise to be " let down ".

 

[TMSE]

Please do not use the phrase "cash sitting on the sidelines." It is just straight-up, completely wrong. All shares of stock are owned by someone at all times. Cash cannot be "taken out" of the stock market for the simple fact that if one person sells another must buy therefore making it a zero sum game (except for IPO's, new stock grants, and bankruptcies).

As for the OP's question, I think it depends on the nature of the downturn. Tesla will continue to need access to capital markets to fund ongoing operations for the foreseeable future. If the downturn is due to a banking crisis that could chop TSLA as their cost of capital could rise precipitously.

You must have misunderstood my point. Cash I am referring to is the cash sitting in my bank account or in a brokerage account barely earning any interest. A significant portion of my portfolio is just simple cash. There are a lot of individual and institutional investors in the same predicament as mine. How hard is that to understand?

 

[GoTslaGo]

There will not be a market crash precisely because too many people and institutions are expecting the crash. The amount of cash sitting on the sidelines, waiting to be invested, is at historically highest level.

Where can you get this information?

I used to get a clue of it from: www.ici.org, and followed a series of link pointed out by author Mike Sincere in his "All About Market Indicators". But the site changed and I cannot use his sequence order anymore. I bumbled about the website looking for the cash percentages and have been unsuccessful to find the amounts anymore.

Thanks!