Musk softens his swagger
Job cuts are a tried and tested way for companies to trim costs. But when you are burning through as much cash as Tesla — $1bn in the last quarter alone — a 9% cull of staff does not make much of a dent.
The change of tone matters more. Elon Musk, the US electric car maker’s combative CEO, has been infamously nonchalant about Tesla’s lack of profitability. From his unfunny April Fool’s joke about a Tesla bankruptcy to his dismissal of one analyst for asking “bonehead questions”, he can at times come across as the antithesis to schmooze guru Dale Carnegie.
Musk’s apparent mission: to lose friends and alienate Wall Street. Yet, in a display of humble-pie eating, he has conceded that Tesla needs to prove it can become “sustainably profitable”. It was a startling admission and a sign that he may have woken up to the need to play nice.
Musk needs all the market goodwill he can get. Tesla has made a loss every year of its 15 years in existence. It is forecast to book a negative cash flow to the tune of $4bn in 2018. Some reckon the company may require as much as $10bn in additional capital over the next two years simply to keep operations going. The staff cuts, which one analyst estimates would result in about $135m in annual cost savings, will not significantly alter this. A cap-in-hand return to the capital markets is inevitable.
Everything comes back to ramping up output. If Musk is to meet his goal of moving into second-half profitability, Tesla will have to start delivering a lot of cars, fast. It aims to make 5,000 lower-cost, mass-market vehicles a week by the end of June and then 10,000 a week thereafter.
These are lofty targets. For now, investors are giving it the benefit of the doubt. Shares are up 36% from their April lows and bonds that mature in 2025 are trading at nearly 92c on the dollar, compared to the 87c they had traded at two months ago. Short-sellers have been caught out by the recent rally. They will have their day in the sun if Tesla undershoots its targets yet again. London, June 14