Shares of electric vehicle (EV) manufacturer Tesla (TSLA -4.59%) fell 21.6% in March, according to data provided by S&P Global Market Intelligence, and they haven't stopped dropping in April. The stock was down 8.4% in the first three trading days of this month.
The biggest change at Tesla is that the Fremont, California, factory was forced to shut down on March 23, and the Gigafactory in Nevada is cutting about three-quarters of its workforce. Without vehicles coming off production lines, Tesla doesn't have any revenue or margin, meaning cash burn will likely be high in mid-2020.
If the shutdown lasts long, Tesla will burn through a significant portion of the $8.8 billion in cash on its balance sheet, but the real worry should be after plants reopen. It's unclear what demand for large, expensive EVs will be like, with a recession likely to hit the U.S. and potentially the entire world. For a company that has yet to reach sustainable profitability, a decline in demand would hurt cash flow.
It's difficult to say where any auto stock goes from here. Plants are going to be shut down for the foreseeable future, and cash flow will be negative as a result. Tesla could qualify for some of the government recovery funds, but it's not yet clear how much money or what hole that will patch in the cash flow statement.
I think the bigger questions involve what the industry looks like when it gets back to business. New EV competitors are still coming in 2020 and 2021, and if overall vehicle demand is depressed, the manufacturers left will be fighting over fewer customers. That's what I worry about with Tesla long term, and only time will tell if Wall Street's current pessimism is well founded.