By Tim Higgins
For all of Elon Musk's public complaining about the handling of the pandemic, Tesla Inc. is shaping up to be one of the biggest business winners of the Covid-19 era.
After years of losses that made many investors wonder if the Silicon Valley car maker could ever operate in the black, Tesla has sustained a profit through one of the worst economic shocks in history, helped in part by the sale of regulatory credits. It is expanding rapidly at a time when larger rivals are losing money and cutting production, even as they chase Tesla's lead in electric vehicles.
Tesla's share price has skyrocketed fourfold this year, to a level even Mr. Musk has suggested is excessive.
Behind that string of successes is a series of moves Mr. Musk made over the past year that positioned the company well when the coronavirus struck -- coupled with his determination to keep Tesla operating as much as possible during the pandemic, even in defiance of health authorities.
Extending Tesla's hot streak -- and justifying a market valuation that currently exceeds that of Volkswagen AG and Toyota Motor Corp. combined -- faces great odds, especially given the threat of an extended downturn. And Mr. Musk is aiming to rapidly add production capacity and plans new vehicle models, activities that have strained Tesla before.
If he pulls it off, Mr. Musk could achieve his long-held goal of transforming Tesla from a niche into a mainstream vehicle maker. And he could bring Tesla out of the pandemic positioned much the way Ford Motor Co. emerged from the 2007-2009 recession in much healthier form than its rivals.
"There is a central similarity between how Ford emerged as the leader after the Great Recession and why Tesla is well-positioned to emerge as the leader following the pandemic," said Gene Munster, managing partner at investment and research firm Loup Ventures. Both made strategic bets ahead of a downturn, he said, that then allowed them to win market share and generate cash.
Tesla's rosy future is no certainty. Mr. Musk nearly lost Tesla and his personal fortune during the last recession, betting everything that his vision for electric cars could catch on if he could just buy time, raise funds and develop the best vehicle possible.
Last year, Tesla once again was on the ropes after years of heavy investing into the Model 3 compact car and then-coming Model Y compact sport-utility vehicle. Longtime Tesla advocates, such as Adam Jonas, a veteran industry analyst for Morgan Stanley, were cautious after the company saw sales slow and losses mount. Mr. Musk's plan to open a China factory in a year's time seemed unrealistic.
Mr. Musk righted things just in time. He focused on generating a profit and celebrated the start of production in the China factory in December. The Shanghai plant helped drive Tesla sales in recent months and partly offset the temporary closure of the company's lone U.S. plant as local authorities battled the virus. Second-quarter revenue in the U.S. fell 11% year-over-year, but those in China more than doubled, according to the company.
Tesla also benefited from the Model Y starting to roll off the line in March. The SUV's order backlog secured prior to the pandemic helped sustain deliveries when many prospective new car buyers were stuck at home.
To generate a second-quarter profit, Mr. Musk pulled out all of the stops. As the U.S. economy ground to a halt, Tesla reduced salaries, furloughed workers and sought rent breaks.
Mr. Musk also bolstered Tesla's sale of regulatory credits last year in a move that helped him eke out profits in the first half. He has now delivered four consecutive quarters of profit for the first time in Tesla's history, positioning the company for possible inclusion in the S&P 500 index.
"We had a narrative change from: `Tesla is great when the markets are great, but watch out when things get rocky,'" Mr. Jonas said. "Well, things got rocky and the traditional auto makers need the luck."
Just how much a recession can shake up the car industry was illustrated in 2009. Tesla was hardly a player then, making just a few cars a month.
But Ford, having raised billions of dollars to fund a turnaround plan ahead of the recession, capitalized on the moment. It slashed costs, closed dealerships, jettisoned brands and refocused on core products. Its shares soared from a low of $1.01 in November 2008 to a high of $18.81 in early 2011, when it posted its highest profit since 1998.
This time, Tesla is positioned to emerge stronger. It is working on a new car plant outside Berlin and has announced plans to put its fourth assembly facility in Austin, Texas.
Tesla's annual revenue, Mr. Jonas forecasts, will rise from $24.6 billion last year to top $170 billion in 10 years. That would exceed Ford's $156 billion in sales last year, even though Tesla's total vehicle deliveries would still be much smaller.
Ford also serves as a warning that fortunes can quickly change. Investors lately have questioned its strategy, while the company suspended its dividend and has raised more than $20 billion in cash to weather the current economic storm. On Thursday, Ford reported a second-quarter operating loss of $2.76 billion.
Critics of Tesla note that revenue has fallen in several recent quarters and question the sustainability of the profits. And many of the financial incentives several governments have offered to push drivers to electric vehicles -- particularly in the U.S. -- are fading.
Tesla has lobbied Washington to keep tax breaks in place domestically, though their future may rest more on the outcome of the election in November than Mr. Musk's lobbying prowess.
Sanford C. Bernstein & Co. analyst Toni Sacconaghi downgraded the car maker last month, even with his bullish belief in the future for electric vehicles and advantages Tesla holds. "Tesla's current valuation is mind-boggling," he said.
Meanwhile, Mr. Musk promises more action to drive growth, including development of a subcompact vehicle aimed at the European and China markets. And he has signaled a focus on sustaining the recent earnings momentum.
"We want to be like slightly profitable and maximize growth and make the cars as affordable as possible, and that's what we're trying to achieve, " he told investors last month.
Write to Tim Higgins at Tim.Higgins@WSJ.com