Model 3 miscalculation culminates in major Tesla job cuts
Elon Musk has finally been forced to rethink his vaulting ambitions for Tesla Inc.
The news on Tuesday that Musk will dismiss more than 3,000 employees, or about 9% of the company’s workforce, underscored what many on Wall Street have been saying for months: Tesla has reached a pivotal moment. After misjudging how quickly the carmaker would be able to massmanufacture an electric vehicle for the first time, the chief executive officer is pumping the brakes from years of hiring at breakneck speed.
The biggest job cut in the electric-car maker’s 15-year history underscores the pressure Musk is under to stop burning through money — and start making some. So far, Tesla has cumulatively lost about $5.4 billion, and even most optimists don’t believe the red ink will end there. The company may lose another $1.3 billion over the next four quarters, according to analyst estimates compiled by Bloomberg.
The announcement crystallized a restructuring Musk first alluded to when he tore into analysts who questioned Tesla’s financial straits early last month. While the CEO has stubbornly ruled out the need to raise more money this year, the company has about $1.2 billion in convertible bonds maturing through early 2019. The combination of those obligations and operating costs may necessitate a more than $2 billion injection this year, Moody’s Investors Service said in March when it downgraded Tesla’s credit rating.
“We still have reservations on Tesla shares given production challenges, competitive threats intensifying as well as balance sheet obligations with debt quickly coming due,” Jeff Osborne, an analyst at Cowen & Co., wrote in an email. The job cuts reflect Musk’s “sudden, new-found commitment to hitting profitability,” he said.
The across-the-board cutbacks, which almost entirely involve salaried workers at Tesla’s California headquarters and elsewhere, are an admission that Musk’s ambition has at times exceeded the financial realities of building a car company from scratch.
In addition to spending more on righting ship with the Model 3 sedan, the company will have to shell out billions of dollars to build new car and battery factories in China and Europe — not to mention delivering a new crossover, sports car and semi truck in the coming years. Goldman Sachs Group Inc. analysts said last month that Tesla may need to tap capital markets for more than $10 billion in funding by 2020.
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