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Just yesterday, the S&P 500, which is an index made up of 500 of the biggest US companies officially entered the bear market territory. Year to date the S&P 500 is down more than 20 percent.
The NASDAQ which incorporates most US-listed tech giants is also down more than 30 percent. Inflation is at a 40-year high. And the US economy has seen the first quarterly negative GDP growth stoking fears of a recession.
The US Federal Reserve has also started raising interest rates bringing the COVID-19 era of cheap money to a screeching halt.
Tesla gets a proposal from Indonesia to build another "Giga Berlin" with the same capacity. https://t.co/9yIn62pEmp pic.twitter.com/LIgHWAbV8P— Torque News (@torquenewsauto) June 13, 2022
This has surprised most financial analysts but, since last year Musk has been warning of an incoming economic collapse around this time in 2022.
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And now as the economic outlook has started to shift negatively, we have seen startups starting to declare bankruptcy. Just yesterday EV startup Last Mile Solutions declared bankruptcy only 12 months after its initial public offering.
To prepare for the incoming hard times, Musk has been tightening things around his companies. Throughout last year, Tesla has paid almost all its debt and has amassed an $18 billion war chest.
And just last week, Musk announced Tesla will be laying off 10% of salaried employees as he has a “super bad” feeling about the economy. Yesterday we saw the first casualty of the layoffs as Tesla’s head of Singapore is no longer with the company.
All these leaves no doubt Musk is bunkering down his companies for the incoming financial winter. And today in the second part of his interview with Tesla Owners Silicon Valley, Musk had some harsh words for new EV startups which are just getting going as we enter uncertain times.
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Musk began his warning by recounting the early days of Tesla and how a $50 million investment from Mercedes’ parent company, Daimler, saved the EV maker from bankruptcy in 2008.
Continuing, Musk said…
“It remains the case today that the only American car companies that have not gone bankrupt are Tesla and Ford. And you know, unless something changes significantly with Rivian and Lucid, they will both go bankrupt.
They are tracking to bankruptcy, they may not – I'm not saying like that is currently…like if that's an airplane, they're going like that [Musk shows his hands going down]. So if something happens to change, okay. But, currently, the intersection is with doom.
I hope they are able to do something but unless they cut their costs dramatically, they'll be in deep trouble and will end up in the cemetery like every other company with the exception of Tesla and Ford.”
Musk’s warning seems a bit doom and gloom however, both Rivian and Lucid are currently struggling to reach volume production. Just in the first three months of 2022, Rivian has revealed it lost $1.6 billion while only delivering 1227 vehicles and generating $95 million in revenue.
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Rivian has also let go of its head of production Charly Mwangi amidst the ongoing production woes. In addition to the personnel change, Rivian has also announced a restructuring to deal with the mounting issues.
Lucid is fairing slightly better reporting a net loss of $81 million in the first quarter of 2022, with 360 deliveries generating $57.7 million in revenue.
Still, both companies are in their cash burn phase, and Musk’s point appears to be they will need to be cash flow positive if there is a recession and capital markets dry up.
We will reach out to Rivian and Lucid and we will update the article if we get a response from any of them. Until then, make sure to visit our site torquenews.com/Tesla regularly for the latest updates.
So what do you think? Do you agree with Musk’s assessment that both Rivian and Lucid will go bankrupt? Also, what do you think will happen to early adopters if the companies ended go belly up? Let me know your thoughts in the comments below.
Image: Screenshot from Elon Musk’s interview with Tesla Owners Silicon Valley
For more information check out: Tesla’s 4680 Cells Prove Revolutionary As Refreshed Model Y Revealed To Have A Small 50KWh Battery Pack
Tinsae Aregay has been following Tesla and The evolution of the EV space on a daily basis for several years. He covers everything about Tesla from the cars to Elon Musk, the energy business, and autonomy. Follow Tinsae on Twitter at @TinsaeAregay for daily Tesla news.
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