How Tesla Became Debt-Free In Just Two Decades
company was able to keep its debts low has created a new precedent for auto manufacturers, simultaneously putting pressure on some of the industry’s biggest names.demonstrates how the automaker’s example could set a new precedent for the auto industry, even as other companies still have huge debts to their lendors.
Currently, Ford has a total long-term debt of $140 billion, while GM is right behind with $115 billion in the same category. Tesla, on the other hand, has just $5 billion in long-term debt, and plenty of cash to show for. In fact, the company has $22 billion in free cash flow, meaning that its cash minus debt gives it a $17 billion surplus.
To be sure, the auto industry requires high capital expenditures to some extent, largely due to the expensive materials involved, as well as labor and equipment for production. Automakers also need top-of-the-line research and development, which can be costly from an investment standpoint. Cobb attributes Tesla’s low debts to a few different things, with the first being its sleek lineup of cars, innovative technology, and its overall dedication to renewable energy and sustainability. Through this and CEO Elon Musk’s ability to create investor buzz on social media, Cobb points out how Tesla was able to go from a startup to a large corporation and soaring stock with newly high valuation around 2020.
With a market capitalization of $548 billion , Tesla has demonstrated its strength in financial management over the last 20 years. And with the emerging EV sector gaining more ground than ever before, it will be interesting to see how legacy automakers attempt to catch back up to Tesla’s dominance in the next 20.
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