Elon Musk recently sent an e-mail to all Tesla employees who claimed that the company would run out of cash within 10 months unless "hardcore" cost-cutting steps were needed.Musk also pointed out that although Tesla had just collected $ 2.7 billion in funding earlier this month, cost-cutting measures were still needed.
Musk and the new CFO, Zach Kirkhorn, will review "all expenses of companies around the world, including spare parts, wages, travel costs, rent, and every expenditure in our bank account." Kirkhorn recently took over from Deputy Deepak Ahuja who will be out.
Tesla had $ 2.2 billion in cash at the end of the first quarter of 2019, but the company lost $ 702 million in the quarter, so Musk said in April that Tesla must be "slim." Furthermore, Tesla raised $ 2.7 billion to help the company maintain its operations.
Musk wrote in an e-mail: "This is a lot of money, but according to the level of money burning in the first quarter, it's only enough for us to operate for around 10 months. We have to break even as soon as possible! This is a hardcore problem. to help Tesla achieve the goals of financial and world environmental sustainability. "
This is not the first time Musk has announced financial reforms for Tesla, nor is it the first time he has supported what is called "micro management." More than a year ago, Musk sent a letter to Tesla employees, claiming that he let the financial team "combine every expenditure on a global scale, regardless of the amount, if it does not have sufficient value, it must be deducted."
Musk said at the time that he was "disappointed to find" that Tesla hired too many contracting companies while increasing the production of Model 3, and comparing this structure with Russian dolls.
Shortly after, Musk reorganized Tesla's organizational structure and vowed to remove the "rattan" contractor as part of a "restructuring of the entire company." Furthermore, Tesla fired 9% of employees in June last year. Musk said in an email that Tesla "made difficult decisions now, so we don't need to do it again in the future."
All of these changes took place in the context of "production hell", and Tesla tried to increase Model 3 production to thousands of vehicles per week to fulfill deposits of more than 400,000 orders. With the help of the company's large tent production lines in Fremont, California, Tesla has finally increased production, making the Model 3 the best-selling electric car in 2018 and reaching the company's first two consecutive quarters. Profit
But these cost-cutting measures are not enough to keep Tesla profitable, and the company fell to another loss in the first quarter of 2018. In January this year, Tesla fired a group of employees, this time 7%. Tesla also announced in February that to save money, the company would close most of the stores and lay off some sales staff.
According to Musk, Tesla will eventually sell the $ 35,000 Basic Model 3 that has been long awaited. Musk said in May 2018 that he had delayed Model 3 $ 35,000 to be marketed so the company would not close. In November 2018, he admitted that Tesla was almost bankrupt in just a few weeks.
However, just two weeks later, Tesla changed his plans and announced that many of his shops would remain open. Tesla also raised the price of cars as medicine. In fact, Tesla's vehicle prices have fluctuated over the past few months. This change also has an internal impact: in Tesla's quarterly revenues to shareholders, the company said that of the total loss of $ 702 million, $ 121 million came from changes in the price of the Model S and Model X.
In January this year, Musk and Ahua announced their first consecutive earnings. They wrote that thanks to the list of Model 3, 2018 is the "most critical year" in the history of Tesla. Compared to 2017, Tesla's total production more than doubled, and its revenue increased more than before, reaching $ 21.4 billion.
Although Musk has predicted that the Model 3 will help the company begin to take profits in the third quarter of 2018, heavy losses in the first quarter of 2019 clearly lead to the rearrangement of targets. In February this year, before the release of the first quarter earnings report in 2019, Musk said he hoped Tesla would not make a profit in the second quarter.
Now, in the most recent e-mail sent to all employees, Musk acknowledges that only by adopting "core" steps can he control the rapid consumption of corporate cash. Since the founding of Tesla, the company has basically burned money, and recorded revenue and shipping is still not enough to deal with the cash crisis.
2018 may be a key year for the company's manufacturing operations. But Tesla still faces a crisis of survival in terms of funding, and Musk's solution seems to be the same as the micro management that he now knows. He once said: "If you fight, it's best to be on the front line. Generals hiding behind the battlefield can be losers."