With Tesla bleeding money, Elon Musk initiates hardcore spending review

Tesla Model Y front

Tesla co-founder and CEO Elon Musk announced a “hardcore” and meticulous review of the company’s expenses aimed at keeping operating costs in check. The cost-cutting campaign comes after the California-based electric car manufacturer reported a $700 million loss during the first quarter of 2019, and raised $2.7 billion in capital by offering stock and convertible notes.

Musk sent an email to Tesla’s employees urging them to review every expense, no matter how big or small, and make sure it’s critical. Thirty-four-year-old Zach Kirkhorn, Tesla’s recently appointed chief financial officer (CFO), will examine and approve every expense page the company generates. Musk will personally review every 10th page to ensure nothing falls through the cracks.

“That is a lot of money,” Musk wrote in an email sent to employees, referring to the $2.7 billion raised recently. He added the sum “actually only gives us approximately 10 months at the first-quarter burn rate to achieve break-even. It’s vital that we respect the faith investors have shown in Tesla, but it will require great effort to do so.” The email wasn’t sent to the public or shared with the media, but CNBC obtained and published a copy of it.

On May 20, Tesla stock briefly dropped below the $200 mark for the first time since 2016 as the company deals with a salvo of bad news. It announced the cost-cutting measures shortly after posting a sizable first-quarter loss, and several days after investigators confirmed Autopilot was turned on before a deadly collision involving a Model 3 and a semi truck. Separately, it issued an over-the-air software update to address a series of fires reported in China, Hong Kong, and the United States. And, the American government refused to exempt key Chinese-made parts found in the Model 3 from looming tariffs.

While Musk seemingly recognizes the challenges and hurdles that lie ahead, he’s confident Tesla will eventually be able to post quarterly profits on a regular basis. In May 2019, he boldly told investors that the firm’s big investment in autonomous technology will ultimately boost the company’s total value to $500 billion. Tesla is also counting on future products — like the Roadster, the Model Y (pictured), and a long-planned pickup truck — to boost both sales and profits, and it will launch its own insurance plan in the coming months.

Some investors have cast doubts on Tesla’s optimism.

“With a code red situation at Tesla, Musk & Co. are expanding into insurance, robotaxis, and other sci-fi projects/endeavors when the company instead should be laser-focused on shoring up core demand for Model 3 and simplifying its business model and expense structure in our opinion with headwinds abound,” Wedbush analyst Daniel Ives wrote in a note to investors.

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