Wall St. helps Tesla weather the crisis

Tesla almost collapsed in the Great Recession. These days, the electric vehicle maker appears to be getting stronger as the economy crumbles around it.

The company was saved from bankruptcy by a last-second round of funding on Christmas Eve 2008. A few months into the coronavirus crisis, Tesla is coming off its first-ever string of three consecutive quarterly profits and has $8 billion in cash reserves.

Tesla's stock, despite a brief dip after CEO Elon Musk bizarrely labeled it "too high," has nearly doubled since Jan. 1, even as its factories in China and California had to close because of the pandemic. Sales continue to climb — Tesla now threatens to crack the top three U.S. luxury brands — and could be further aided if competitors slash spending on costly EV programs.

Tesla has much smaller cash reserves than its established rivals, but its resiliency in the face of this latest threat, experts say, is explained by Wall Street's infatuation with its aggressive product strategy and forward-thinking sales model.

"So much of stock price depends on the future," Jessica Caldwell, executive director of insights at Edmunds, told Automotive News. "Their investments in electrification and autonomous technology represent where the future is heading. In the wake of everyone else being more cautious because they have to be, they continue to forge ahead. It comes down to who has potential."

Morgan Stanley's Adam Jonas lauded Tesla for showing the margins that EVs could be capable of producing.

Jonas said the brand was "proving a big point" that EVs could be "extremely profitable," especially as production ramps up at Tesla's plant in Shanghai.

Emmanuel Rosner, a research analyst at Deutsche Bank, said Tesla's first-quarter earnings and profitability proved it was "pulling away from the pack," and he raised his share price target to $850 from $510. Part of that jump, he said, was a response to what he expects Tesla's rivals to do over the next several months.

"We think a temporary de-emphasizing of electric vehicle investments by traditional automakers could be a positive for Tesla, allowing it to maintain for longer its competitive advantage in electric powertrains and batteries," Rosner said.

"As Ford and General Motors try to maintain adequate cash buffers, Tesla will remain focused on rolling out its Model Y and ramping up China production."

So far, Ford and GM have vowed to remain aggressive on their own product plans, including new EVs.

"I don't think the big players are going to completely pull out, but at the end of the day, it comes down to resource allocation," Caldwell said. "There's only so many resources to go around. In that realm, it being Tesla's core business, they could have more of an advantage."

As traditional automakers roll out 0 percent financing deals to counter weaker demand, Tesla may be aided by the types of vehicles it sells and the loyal following it has built.

Caldwell said the brand's affluent, tech-savvy customers are likely to be less affected than others by the economic troubles wrought by COVID-19. Tesla's online-focused, direct-to-consumer sales model is more en vogue in an era of social distancing, while traditional dealers attempt to beef up their digital marketing efforts and hurriedly set up the remote service and delivery offerings Tesla has had for years.

"As brands go, Tesla's is one of the strongest in the automotive industry. And that kind of brand equity is a company's best defense during economic turmoil," Karl Brauer, executive publisher at Cox Automotive, said in a statement.

"It's likely Tesla will prove more resilient than other automakers in terms of 2020 sales. But 'more resilient' doesn't mean immune, and Tesla's Q1 success story will be difficult to repeat in the coming months."

The coming months for Tesla likely will be defined by the Model Y crossover.

Musk has said the company's newest vehicle, which went on sale ahead of schedule in March, could outsell the Model 3, Model S and Model X combined. Its quick launch could prove valuable should the coronavirus delay competitors such as Ford's Mustang Mach-E, due out this year.

The Model Y, which is more affordable than the Model S and Model X but with higher margins than the Model 3, plays in a segment favored by an increasing number of buyers.

Musk, during a conference call with reporters, said the Model Y was profitable in its first quarter of production, a milestone none of Tesla's other vehicles achieved.

And Tesla said it built more Model Y's in the first quarter of production than it built Models 3s in the sedan's first two quarters of production in 2017.

"Anytime you're ramping up a vehicle, the incremental volume is going to make things look more rosy," Caldwell said. "If Model Y lives up to expectations, it could be a good year for Tesla despite everything that's going on."

Another product in Tesla's portfolio, especially one in the popular crossover space, could prove troublesome for rival luxury brands.

With limited production of the Y, Tesla surpassed Audi by roughly 11,000 vehicles in first-quarter U.S. sales, according to estimates from the Automotive News Data Center, and is gaining on Lexus, BMW and Mercedes-Benz.

A continued ramp-up in Model Y production should further close that gap. "It definitely does create more competition with the luxury brands," Caldwell said.

Even as Tesla cements itself as a legitimate player, some dealers remain unbothered.

"When a customer is spending $100,000 on a luxury car, they expect better service, and when you don't deliver that, they notice," said Paul LaRochelle, partner at Sheehy Lexus of Annapolis in Maryland, part of the 29-store Sheehy Auto Stores group, and chairman of the Lexus dealer council.

LaRochelle said Teslas were quick to turn on his used-car lot before COVID-19 arrived, but not anymore; he has several that are past the group's sell-by date and getting longer in the tooth every day.

"I've never viewed Tesla as a threat to my business because I've never had a Lexus customer leave the brand because we didn't have an EV to sell them," LaRochelle said.

"I don't think there's anyone at the OEM level among luxury brands who can't deliver what Tesla has done. There are plenty of luxury EVs coming to market very soon, it's just that Tesla has the segment covered because they were first."

Larry P. Vellequette contributed to this report.