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article imageTesla claims it will run out of cash in 10 months and needs cuts

By Ken Hanly     May 17, 2019 in Business
Tesla CEO Elon Musk told his employees that the company will run out of cash in about 10 months unless there are hardcore cost-cutting moves, according to a email to all staff obtained by Reuters and Electrek.
Musk's announcement
Musk together with his new CFO Zach Kirkhorn will review "all expenses of any kind anywhere in the world, including parts, salary, travel expenses, rent, literally every payment that leaves the bank account" according to the email.
The company finished the first quarter this year with $2.2 billion in cash. However, the company lost $702 million during the quarter. Musk then said that Tesla would have to be put on a spartan diet. However, Tesla was then able to raise $2.7 billion that will help keep the company afloat for some while.
However, Musk still claimed there was a need for cuts: “This is a lot of money, but actually only gives us about 10 months at the Q1 burn rate to achieve breakeven! This is hardcore, but it is the only way for Tesla to become financially sustainable and succeed in our goal of helping make the world environmentally sustainable.”
Musk went through the same exercise just over a year ago
Musk then sent an email that he was going to go through every expense worldwide and cut every item no matter how small that did not have a strong justification. Trump has embraced micromanaging or "nano" managing as Musk puts it.
Musk was disappointed at the number of sub-contractor companies Tesla employed. He said the system was like a Russian nesting doll. At the time Tesla was using them to ramp up production of the Model 3 for a mass market.
Musk later flattened Tesla's organizational structure. He said it was to remove the barnacles of contractors as part of a company wide restructuring. The company also laid off 9 percent of its workforce last June. All this was happening against a backdrop of frantic attempts to up production of the Model 3 to clear a backlog of 400,000 preorders. By getting the help of a huge production tent in the parking lot of Tesla's Fremont California factory, Tesla improved its production rate enough to make the Model 3 the best selling electric car (EV) last year. It managed two profitable back to back quarters.
An analyst at the time noted the increase in production could make it a challenge to retain quality: "Tesla will need to scramble to reach a rate of 6,000 Model 3s per week, Akshay Anand, executive analyst at Kelley Blue Book, tells The Verge. “A fast pace, however, is the enemy of quality, and Telsa needs to plan for quality first, volume second,” he says. “For many consumers, this will be a first touch point with Tesla, so the company needs to ensure the touch point is a positive one.”"
Tesla also was to close most stores but changed its mind
This February the company announced it would close its stores and layoff sales staff to save money. This was part of a plan to be able to market its cheaper $35,000 base version of the Model 3 that was finally launched. However, the move backfired and Tesla changed its mind keeping many stores open and raising the price of its cars to compensate for the move.
Tesla's most recent quarterly letter to shareholders said that more than $121 million of its $702 million loss came from its change in price of the Model S and Model X alone. Musk has told shareholder that he does not expect Tesla to turn a profit in the second quarter either.
Musk now realizes that the company faces an existential crisis if it continues to burn through money. However, his micromanaging could add to the company's problems. Musk claimed in 2015: “If you are fighting a battle, it’s way better if you are at the front lines. A general behind the lines is going to lose."
However, an earlier article shows that many are critical of Musk's micromanagement style: "In conversations with 35 current and former Tesla employees, CEO Elon Musk is described as a polarizing figure who inspires but micromanages to an extreme.
Musk has been known to approve expensive, high-tech projects against the advice of his own direct reports. Employees also say Tesla relies on disconnected custom apps that make it hard to keep track of project budgets and parts."
More about Tesla, Tesla losses, Tesla to make cuts
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