May 12, 2020 (IAM Newswire via COMTEX) -- Tesla Inc's /zigman2/quotes/203558040/composite TSLA +10.78% California plant has reopened as Elon Musk defies orders that aim to contain the spread of COVID-19. Musk will be in the first line and asking to be the only arrested, if it comes to that as he tweeted on Monday. Back on Saturday, the company filed a federal lawsuit against the country as Musk already threatened to relocate the manufacturing facility out of California.
Musk has been vocal about COVID-19 as he even initially dismissed the concerns as dumb. And although Tesla was forced to stop production, Musk raised his voice again to free Tesla from the lockdown as he called the orders "fascist". Alameda County health authorities stated they learned the plant has reopened and emphasized Tesla can only maintain minimal operations until an approved plan is in place. It is still unclear whether Tesla would suffer any consequences for reopening without a plan in place.
Detroit Automakers Stand Strong
The Big 3 Detroit Automakers are weathering the storm, at least without any talk of bankruptcies. Perhaps this is the case because they know better due to the previous downturn when they vowed to fortify balance sheets. Just to be on the safe side, Morgan Stanley conducted a "shutdown analysis" and its results inspire confidence that giant automakers such as General Motos /zigman2/quotes/205226835/composite GM +4.14% and Ford /zigman2/quotes/208911460/composite F +4.45% don't need to fear the fate that many companies experienced due to the blows of the 2007/2008 financial crisis. Yet, not even then did the industry come to a standstill like it did during this pandemic. It seems that automakers learned their lesson the hard way as during the Great Recession, they were forced to shed billions in capital expenditures and structural costs. As CEOs made it their mission to be prepared for the next iceberg, they made sure to have tens of billions of dollars in available cash, less leverage and more flexible union contracts when it comes to vehicle production in order to save money when plants are idled.
By no means are things going well as Ford was the first to suspend its dividend and GM soon followed in April. But GM was ahead of the curve as it exited its unprofitable markets such as Europe and announced cuts in November last year as part of its $6 billion cost-saving plan through 2020. GM actually achieved a profit in the first quarter whereas Ford ended with a loss of $2 billion and Fiat Chrysler Automobiles /zigman2/quotes/204248628/composite FCAU +3.37% also losing $1.8 billion. But Ford's debt-to-profit ratio still remains healthy under 2 with 1.4 in 2019 whereas it was 14.1 in the dreaded 2008. But Ford is estimated to burn $8.5 billion for the year whereas GM is is in for less than $3 billion. These three combined, they burned about $8.6 billion in cash during the first quarter: Fiat Chrysler leading the way with $5.5 billion, followed by Ford at $2.2 billion whereas GM burned through $903 million out of which $600 million was COVID-19 related. Although the second quarter is expected to be the worst quarter in terms of coronavirus impact for the entire auto industry, Detroit's Big 3 seem equipped to handle it.
Tesla's shares have gained 239% in the past 12 months, compared with gains around 1.7% for the S&P 500 index and there is a reason for that. No matter what is your opinion of Musk, no one can dispute the fact he brought his vision forward and delivered on the promises. Now whether Tesla can deliver yet another surprise and achieve a fourth profitable quarter in a row is open for debate as not even Musk had a business plan called 'pandemic' before and literally no corporation could ever imagine that the economy could just 'turn-off'.
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