By Antony Currie
(The author is a Reuters Breakingviews columnist.)
NEW YORK, May 17 (Reuters Breakingviews) - Elon Musk is rewriting Tesla's fast-moving cash story. The $40 billion electric-car maker's chief executive on Thursday told employees that he was mandating a "hardcore" effort to keep costs under control while also admitting that the firm could quickly use up $2.4 billion of capital it just raised, news website Electrek reported. That's a plot reversal in just a few weeks.
Tesla was supposed to have done this already. According to a missive Musk sent in April last year, the finance team would nix any expenses, "no matter how small," that lacked "a strong value justification." Musk has twice instituted layoffs since then, too.
Moreover, on Tesla's first-quarter earnings call last month he said he had installed "appropriate financial discipline throughout the company." His most recent email to staff suggests that hasn't in fact yet happened and that Musk is not expecting a quick turnaround in the recent slump in car sales.
The CEO's expectations seem to have changed in just a couple of weeks. While pitching the capital raise he told investors Tesla could fund its operations with cash, and only wanted the extra money in case of a recession or a global drop in demand for vehicles, according to CNBC.
In any event, the net proceeds from selling shares and convertible bonds this month bought Tesla more time in the wake of its $700 million first-quarter net loss. But Musk said the existing business will burn through the new cash in 10 months based on the rate in the first three months of the year. And Tesla has to pay off some $750 million in debt by November.
Nickel-and-diming costs also won't help with ambitious plans to sell more existing models, introduce new ones and expand Tesla's solar-energy business. Musk may, of course, just be trying to scare his workforce into action. But the apparent contradictions in the script should prompt investors and watchdogs alike to ask a few questions.
- Tesla Chief Executive Elon Musk told employees in an email on May 16 that it is important to examine every expenditure at the company, "no matter how small," news website Electrek reported.
- Chief Financial Officer Zach Kirkhorn will now review and sign every page detailing payments made by the company, while Musk will review and sign every 10th page.
- Musk said the approach was "hardcore ... but it is the only way for Tesla to become financially sustainable." He said the $2.4 billion in net cash the company raised in its recent stock and convertible-bond offering only gave it approximately 10 months at the first-quarter burn rate to achieve breakeven.