Many of us already know what a zombie company is. However, tens of thousands of new visitors come to our site each day. So, we will start this article by explaining what a zombie company is, and then we will analyze whether Tesla is a zombie company or not.
Zombie companies are those who have large debts. But these companies don’t generate enough revenue even to cover the interest of that debt. These companies can only survive if they raise more money.
Increasing revenue and profit is essential for a growth company. Thus capital raise is very important for a growing business. However, if a business is complacent, has a shrinking market share, and is not innovating, it will never be able to increase its profits. If they have a lot of debts and do not generate enough revenue even to cover the interest, it will never survive.
But there are many companies where investors have false hope that somehow the company can turn around even though all the business fundamentals are falling apart.
Zombie companies also have bozo employees. Bozo employees are those who are unproductive and do not contribute to the company’s progress; instead, they sap the business’s energy.
If you visit New York City and watch subway workers, you would understand what we mean. We have seen countless times that there are dozens of workers on an MTA work site. But only one or two employees are working, and the rest of them are playing video games on phones, gossiping with coworkers about politics, and taking naps on a bench. It may seem like we are exaggerating, but it is happening in NYC MTA right now. Please visit Bronx, Brooklyn, or Queens subway line where construction is going on and observe the workers.
NYC MTA is unprofitable, has thousands of unproductive employees, and there’s no path that it can become profitable. It’s a prime example of Zombie.
The term Zombie company was first coined in Japan in the 1990s. During that time, Japanese banks gave loans to a lot of unprofitable, unproductive companies. When a company failed to repay loans, banks gave them more low-interest loan interest. The problem is, it makes a company more unproductive. According to Bank of America, 16% of US companies are zombies.
During an economic recession, it’s understandable that many companies need fresh cash infusions. It could be from the Bank, federal government, or state government. The stimulus package that the government provides during an economic downturn has lucrative terms. Sometimes the interest rate is 0% on these loans.
A productive company would use the money and grow. But an unproductive company would use the money as revenue.
A company becomes unproductive due to its management. The people running the business are either dilutional or not fit for their power. They don’t have any viable business plans.
These zombified companies’ managers and executives only care about salary, bonus, and compensation packages. When they get low-interest money, they first increase executive salaries or give bonuses for their outstanding performance for securing a loan instead of growing their business. And it happened precisely after the 2008 stock market crash.
Many companies got easy government loans. These big corporations’ main argument was that they are too big to fail because they employ hundreds of thousands of employees.
After they secured government loans, the first thing many companies did is to announce executives’ bonuses. It created outrage at that time.
During that downturn, Tesla also got federal loans. And since then, Tesla has raised capital several times. Moreover, Tesla also has $12 billion in loan obligations. Until a few years back, Tesla was not profitable. But skeptics of Tesla say that Tesla is only profitable because of EV credits. So, is Tesla a Zombie company?
No. Tesla is not a zombie company because, in reality, Tesla is profitable even without EV credits. Furthermore, Tesla is making new modern factories, has compelling products that customers love, has a huge profit margin on each vehicle. Tesla also has a moat called Supercharger, has solar roof tiles, and an energy storage business. They also have upcoming products called Tesla insurance and Robotaxi.
Tesla is not an unproductive company. They are innovating on many fronts, such as manufacturing, battery technology, in-car infotainment, self-driving software, solar tiles, insurance, etc.
Tesla is not like other companies. From numerous sources, we know that the work environment at Tesla is very rigorous. They hire slow, fire fast, which is very important to weed out unproductive employees. The executives turnover rate at Tesla is very high. It’s not because Tesla’s work environment is toxic; it’s because many executives are not accustomed to working in the fast-moving Tesla environment.
It’s clear that Tesla is not a place for Bozo employees.
No other automaker in the market provides advanced in-car software similar to Tesla. Moreover, they are continually improving this software. We can play video games, browse the web, watch Netflix, Hulu, Disney+, YouTube, listen to Spotify, satellite radio, and many more things on the center console.
They are also developing the Full Self Driving software. It is already feature-complete, and thousands of users are using it in Tesla vehicles. The only thing Tesla is doing right now is to collect more real-world data and train their full self-driving Neural Network software.
The fantastic thing about Tesla Full Self Driving is that only a few dozen employees developed this software. But Tesla is selling this software for thousands of dollars. Therefore, in this Tesla business, they are making far more money than their operating cost.
In 1914, legendary Henry Ford invented the rolling car manufacturing line. However, over a hundred years, this manufacturing stayed the same. Even the car production rate stayed the same over a century. There were no innovations in car manufacturing except for the introduction of new machinery. But Tesla is not only making a revolutionary car, but they are also making revolutionary factories.
Elon Musk wants to make machines (factories) that make machines (cars). Elon Musk knows that one day every car manufacturer will make long-range EVs. Everyone will have full self-driving software, but Elon predicts that not everyone will have advanced car manufacturing facilities similar to Tesla.
So, in the future, Tesla will generate more profits per vehicle than its competitors.
Moreover, Tesla makes almost all required parts for their vehicles. This vertical integration is also a trump card for Tesla.
Elon Musk’s Commitment:
Elon Musk is the biggest shareholder of Tesla. According to him, he is the first one to invest in Tesla and will be the last one to take out his money. He even sold all his houses to concentrate on Tesla and SpaceX. It shows how committed Elon is to Tesla.
According to numerous interviews, we know that Elon never quits. He will try until he becomes successful. SpaceX is the proof.
Elon in 2014 predicted that he would be able to sell 500,000 cars in 2020. In 2020, we found that Tesla sold around 499,500 vehicles. Even before that, in 2006, he laid out a plan for Tesla where he said that Tesla first would make a sports car. Then from the proceeds, they will make a luxury sedan. Then they will make another car. Finally, they will make an affordable Tesla.
After 16 years, Tesla did all of the above. First, they made a Tesla Roadster. Then they made the Model S, Model X, and finally the Model 3.
In 2020, during the battery investor day, Elon predicted that Tesla would make 20 million cars yearly by 2030, and by 2024 Tesla would release a $25,000 car. According to Elon’s previous records, we are sure it’s going to happen.
Tesla not only has a current profitable business, but they also have a future business roadmap.
In 2008, Tesla took a government loan. But they paid that in full with interest before its due date. Later on several occasions, Tesla took more loans to make factories. But Tesla already generates enough profit to pay its loan.
They are also smart. During 2020 when Tesla stock soared, they issued more stocks and raised more capital. It’s not because they needed cash to operate, but they wanted to keep some money in hand. They quickly could have taken more loans but didn’t.
In China, they made a factory. Tesla took loans from Chinese banks to build it. Moreover, unlike other auto manufacturers, they did not partner with any Chinese companies to make it. Tesla owns 100% of that factory. It was a smart move.
On various occasions, Tesla took loans not because they are insolvent but because they are rapidly expanding their manufacturing plants.
Tesla’s future growth would come from many fronts.
Tesla insurance is one example. Solar roof tiles, grid energy storage, home energy storage solutions, and Robotaxis are also growing businesses.
As we can see, Tesla is not delusional. They have a stable future growth plan and are already profitable.
Tesla is not a zombie company. Fear, Uncertainty, and Doubts (FUD) against Tesla is insane. Some people don’t like Elon Musk and hate everything he does. Always use your critical judgment and don’t let blindspot skew your views.