Elon Musk makes dire Tesla warning in cost cutting hunt

 slashgear.com  05/17/2019 18:43:45 

Tesla’s Elon Musk has made an ominous prediction about the automaker’s financial outlook, with a leaked memo from within the firm giving it less than a year to achieve breakeven at its current spending rate. Tesla announced losses of $700m in the last quarter, though the automaker did end the three month period with $2.2 billion in cash.

Consistently producing cars and meeting cashflow demands has proved a long-standing challenge for Tesla. Last-minute mobilizations of the workforce to meet production goals have become commonplace as the end of each quarter nears.

Even with Model 3 a sales hit in its segment, and the Model Y crossover variant announced to a generally positive reception, Tesla’s position is still not as secure as it needs to be. In an email sent on Thursday to employees, leaked to Reuters this week, Musk announced that he would be taking a far more stringent approach to expenses moving forward. That will include assessing just about every outgoing possible in the hope of cutting costs.

The decision isn’t an optional one, as Musk outlined it. Instead, the outspoken CEO predicted, Tesla would have just ten months to achieve breakeven if the rate it was running through cash in the first quarter was to continue. As a result, he and the finance team will be scrutinizing everything.

“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 wrote. The finance division will “comb through every expense worldwide,” he explained, in the hunt for potential places where savings could be made.

The email follows job losses at Tesla, both in mid-2018 and earlier this year. Musk also announced that the automaker would be closing almost all of its physical stores, keeping only a handful as showcases of Tesla technology, and shifting sales to online only. That, he said, would allow for a price cut across the Tesla range, a move generally seen as helping offset the lowered US federal tax incentive which reduced for the automaker’s cars at the start of the calendar year.

Shortly after, however, Musk was forced to walk back those plans somewhat, with some dealerships escaping the axe – and the price savings on Tesla cars being trimmed. At the same time, frustrated owners who had rushed to get their orders in by the end of 2018, but who then watched as new buyers were lured in by tempting promotions and deals, were pacified by feature offers.

Earlier in May 2019, Tesla closed a new stock and convertible notes offering, for $2.7 billion. Even with that, however, Musk’s prognosis should no changes be made is fairly dire. Later this year, the Tesla Gigafactory 3 – the new Chinese facility under construction – is expected to open.

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