Tesla To Shut Down Fremont Factory Due To Coronavirus, Says It Has Enough Cash To Survive

Tesla Inc. TSLA will temporarily suspend production starting Monday at its Fremont factory as local authorities imposed restrictions on businesses to curb the novel coronavirus (COVID-19) outbreak.

What Happened

In a statement late Thursday, Tesla said its employees, their families, and suppliers are facing challenges from continued operations during the pandemic, despite the health precautions the automaker has taken.

"Basic operations will continue in order to support our vehicle and energy service operations and charging infrastructure, as directed by the local, state and federal authorities," Tesla said.

The Palo Alto-based company further announced that its New York factory will also temporarily suspend production, "except for those parts and supplies necessary for service, infrastructure and critical supply chains."

Production at other factories will continue as usual.

The company noted that it has $8.6 billion in cash reserves. "We believe this level of liquidity is sufficient to successfully navigate an extended period of uncertainty."

Why It Matters

Tesla's announcement comes days after Alameda County officials said that the automaker "is not an essential business" and therefore, must only maintain "minimum basic operations" during the pandemic.

There has been back and forth communication between Tesla and the County officials, with the former earlier agreeing to reduce staff at the Fremont factory from 10,000 to 2,500, as reported by Buzzfeed News on Wednesday.

Few hours ahead of Tesla's announcement, the Fremont Police Department tweeted that the city police chief would meet Tesla Factory management later in the day to "discuss cooperation for compliance with the County Health Officer's Order."

Munster Says Tesla's Future Is Still Bright

Loup Ventures managing partner Gene Munster said that Tesla is well-positioned to withstand the production shutdown.

Apart from its strong cash position, Munter noted that the demand for the automaker's Model 3 remained high going into the shutdown.

According to the former research analyst, Tesla changes the pricing of its models based on demand. The fact that there has been no change in the last three months means the demand is on track, he said.

Munster noted that it's difficult to pin a number on Tesla's production for 2020, but reiterated his earlier sentiment that "the company is properly capitalized to resume its trajectory of growing at 25%-30%, ahead of the broader auto industry."

Price Action

Tesla's shares traded 7.87% lower at $394 in the after-hours session on Thursday. The stock had closed the regular session 18.39% higher at $427.64.

Photo Credit: Courtesy of Tesla.