Blog Report: Musk Orders Company to Cut Costs

Tesla Chief Executive Officer Elon Musk told employees on Thursday that the company will run out of cash in 10 months if it can’t cut costs.

In a letter seen by Reuters, Musk explained that every expense will receive review in an effort to hit breakeven.

Tesla closed earlier this month a $2.7 billion offering of stock and convertible notes. That came a week after the carmaker said it lost $700 million in the first quarter, and is now down to about $2 billion in cash.

This isn’t the first time the company has sent out a red alert about expenses. An April 2018 memo also mentioned cost-cutting measures including a more thorough review of expenditures. Musk said the plan was to “cut everything that doesn’t have a strong value justification,” and any expenditure above $1 million for the next year was to be personally approved by him.

He echoed that financial diligence in the note reported by Reuters.

“That is why, going forward, all expenses of any kind anywhere in the word, including parts, salary, travel expenses, rent, literally every payment that leaves our bank account must (be) reviewed,” Musk said in the letter.

Unfortunately, cost-cutting has impacted the Tesla team in the past year. Tesla laid off 9 percent of its workforce in June 2018, then 7 percent of its team in January.

 

[1OldCarBuf]

The sleeze-balls are going to have a field day with this story.

 

[CalX]

I blame Fred for this. I wrote him this email and I hope he changes his article and is more careful in the future.

Hi Fred,

Your article on the cost cutting is causing a lot of confusion and FUD. Unfortunately a lot of reporters are quoting or reading your article and interpreting what you said as Tesla will run out of cash in 10 months. This has severely hurt the stock and the company. In your article you wrote:
"Even Tesla still had a $2.2 billion cash position at the end of last quarter, Musk said that it wouldn’t last that long with their burn rate:
“This is a lot of money, but actually only gives us about 10 months at the Q1 burn rate to achieve breakeven!”"

when in fact what Elon wrote was: "Investors nonetheless were supportive of our efforts and agreed to give us $2.4 billion (our net proceeds) to show that we can be financially sustainable. That is a lot of money, but actually only gives us approximately ten months at the first-quarter burn rate to achieve breakeven. It’s vital that we respect the faith investors have shown in Tesla, but it will require great effort to do so."

He is referring to the additional 2.4B capital raise and not the current cash reserves of 2.2B lasting ten months at last quarter's burn rate. That's a big difference. Right now they have 2.2B plus the 2.4B capital raise which is 4.6B. This is more capital than they have had in any of the past ten years. This is nowhere near a going broke scenario, in fact they are in a strong cash position. But the media has taken your article to mean that Tesla is close to bankruptcy because of what you wrote.

I hope that you would correct your article because the careless reporting has led to significant harm.

for articles referencing you saying that Tesla is going to run out of cash see:
https://www.theverge.com/2019/5/17/18629166/elon-musk-tesla-money-changes-cfo-employee-expenses
https://www.extremetech.com/extreme/291618-elon-musk-tesla-out-of-money-in-10-months-without-hardcore-cost-reduction
https://carbuzz.com/news/tesla-has-10-months-of-cash-to-burn-before-dying-out
https://www.highsnobiety.com/p/elon-musk-tesla-cost-cutting/
https://www.abc.net.au/news/2019-05-18/tesla-to-run-out-of-money-in-10-months-unless-it-curbs-spending/11126356

 

[Watts_Up]

>> Report: Musk Orders Company to Cut Costs

I think Musk's e-mail may have killed the company.

Well Tesla takes a lot of risks... and spend a lot.

What about: "Today we have hit rock bottom," notes Nissan's CEO Hiroto Saikawa.

Nissan Takes A Nosedive In Wake Of Ghosn Scandal
​

I don't think any executive at Nissan is going to take any risk.

Any one at Nissan musty be keeping his head down...

 

[TechOps]

Good! As someone who is experienced operating companies, it was painfully obvious that Tesla's internal operations and spend have been incredibly loose. As a shareholder in Tesla, I am delighted to see some focus on tightening operational efficiency.

 

[neroden]

Inaccurate reporting from TMC staff, as noted later in comments. :-( The email itself was OK, but wildly misreported.

 

[MrAustraliaTax]

Just finalized the purchase of another company.

This was a stock swap, not a cash purchase.

Normal practice.

A multi-billion dollar company CEO reviewing 10% of ALL expenditures? This is micromanaging, not normal practice.

 

[SO16]

This was a stock swap, not a cash purchase.

Good point. Still would be odd for a company on the verge of bankruptcy to do even this.

Should be of no surprise that Elon is hands on more than most. Sometimes to his detriment.

But this fund doesn’t seem too concerned.

Twitter

 

[Mojito]

I know if I was in the market to buy a model 3 after reading this news I would have to hold off on my purchase for a few months this is a computer on wheels with no support of a operating system if it fails but it is just a wonderful product that It can adapt and be profitable.

 

[Nuclear Fusion]

A multi-billion dollar company CEO reviewing 10% of ALL expenditures? This is micromanaging, not normal practice.

Cause most CEOs are not emotionally invested

 

[TeeEmCee]

Good! As someone who is experienced operating companies, it was painfully obvious that Tesla's internal operations and spend have been incredibly loose. As a shareholder in Tesla, I am delighted to see some focus on tightening operational efficiency.

The CEO and CFO reviewing each expense is not focus.

 

[TeeEmCee]

I know if I was in the market to buy a model 3 after reading this news I would have to hold off on my purchase for a few months this is a computer on wheels with no support of a operating system if it fails but it is just a wonderful product that It can adapt and be profitable.

You’re not alone. I too am in the market for a replacement for my bought-back Model 3. I lurk around looking for signs of improvement and stabilization but I see none so far. No evidence of the company being on a sustainable path or the design and mfg. issues that have plagued my previous Tesla being resolved.

This idea that all of Tesla’s issues have a centralized solution (such as “reviewing each expense” vs building competent organizations that can run smoothly on their own) tells me that there’s no chance in hell for recovery, so I hold off on further purchases.

 

[hmgolds]

The CEO and CFO reviewing each expense is not focus.

I disagree - in this case. Having the CFO and review "all expenses of any kind anywhere in the world, including parts, salary, travel expenses, rent, literally every payment that leaves our bank account must be reviewed, confirmed as critical and the top of every page of outgoing payments signed by our CFO." and the CEO "personally review and sign every 10th page" is a clear signal to employees that this matters. It's more symbolic than functional, but symbolism matters.

 

[ZoomsansVroom]

I disagree - in this case. Having the CFO and review "all expenses of any kind anywhere in the world, including parts, salary, travel expenses, rent, literally every payment that leaves our bank account must be reviewed, confirmed as critical and the top of every page of outgoing payments signed by our CFO." and the CEO "personally review and sign every 10th page" is a clear signal to employees that this matters. It's more symbolic than functional, but symbolism matters.

Eh, no. If the CFO/CEO have to review each manager's purchase, the manager needs to be terminated. Either you trust people, and have a system to trust them, or you do not.

Top level execs need to have NO daily tasks - they will be remarkably busy, all the same, but any routine task must be delegated.

 

[TeeEmCee]

I disagree - in this case. Having the CFO and review "all expenses of any kind anywhere in the world, including parts, salary, travel expenses, rent, literally every payment that leaves our bank account must be reviewed, confirmed as critical and the top of every page of outgoing payments signed by our CFO." and the CEO "personally review and sign every 10th page" is a clear signal to employees that this matters. It's more symbolic than functional, but symbolism matters.

No offense, but this cheerful naivete cracks me up.


That type of review is what you hire managers and accountants for. If the top honchos must do that daily as stated (i.e. check every single expense), then they’d work some 20-30 FTEs each. Aside from being impossible, that would seriously cut into Elon’s Twitter and gaming engine integration time, so it’s a no go.

 

[MichaelP90DL]

It's one thing to state the obvious to financial analysts who know how to calculate profitability over time. It's quite another to alarm your customer base when you desperately need their business. I recently created a thread in which I stated that I felt that Mr. Musk was in need of remedial CEO-ing. My view hasn't changed. My guess is Mr. Musk was absent that week in business school when they discussed why it's a good idea to control the message, give confidence in the product, create demand for the product, and not scare the *sugar* out of your customers. And if he didn't attend business school...well obviously.

 

[sixela]

It's quite another to alarm your customer base when you desperately need their business.

Call me jaded, but that did not alarm me, and I'm not used to running around like a headless chicken every time a storm in a teacup is whipped up.

What would alarm me (as a stockholder) would be bad Q2 numbers. That wouldn't actually alarm me as a customer; if the market valuation of TSLA drops a lot lower then they'd be a bargain for many a large car manufacturer (especially one that wants to expand in other growing markets).

 

[MichaelP90DL]

Call me jaded, but that did not alarm me, and I'm not used to running around like a headless chicken every time a storm in a teacup is whipped up.

What would alarm me (as a stockholder) would be bad Q2 numbers. That wouldn't actually alarm me as a customer; if the market valuation of TSLA drops a lot lower then they'd be a bargain for many a large car manufacturer (especially one that wants to expand in other growing markets).

It certainly would alarm a lot of prospective buyers, but not all. Chrysler went through that twice. Once in the early 80s, and once around 2009. It survived. And prospered. But then Chrysler's management had far better people skills than Mr. Musk.

 

[Watts_Up]

It's one thing to state the obvious to financial analysts who know how to calculate profitability over time.
It's quite another to alarm your customer base when you desperately need their business.
I recently created a thread in which I stated that I felt that Mr. Musk was in need of remedial CEO-ing.
My view hasn't changed. My guess is Mr. Musk was absent that week in business school
when they discussed why it's a good idea to control the message, give confidence in the product,
create demand for the product, and not scare the *sugar* out of your customers.
And if he didn't attend business school...well obviously.

Let me ask you:

- What’s the basis of a company and what is more important Product or Marketing?

IMO, the most important for a business is not marketing, advertising...It’s the product

In today’s society in which the customer has the power in his pocket
(the money and a mobile phone to connect with any other customer),
a company need to focus more on the product than on the marketing.

 

[sixela]

The most important for a business may not be the most important for a stock price. Sadly there are a lot of executives that have an eye on the stock price rather than the business and the other eye on their golden parachute/ejection seat, which may make them make decisions that increase the stock price short term but run it into the ground later (well after they left).

 

[TeeEmCee]

The most important for a business may not be the most important for a stock price. Sadly there are a lot of executives that have an eye on the stock price rather than the business and the other eye on their golden parachute/ejection seat, which may make them make decisions that increase the stock price short term but run it into the ground later (well after they left).

That is one thing that Musk cannot be accused of; among others, one of the reasons why I bought his product.