Tough times ahead for Tesla? In leaked memo, Musk asks staff to pinch pennies, cut costs to stay afloat

By Dana Hull and Josh Eidelson

Tesla Inc. Chief Executive Officer Elon Musk warned in an internal email his company’s rallying shares could get “crushed” if investors start to worry about the electric-car manufacturer’s ability to deliver on profit expectations.
Musk urged employees to stay focused on cutting costs and prevent a reversal in Tesla’s soaring stock price in an email sent Tuesday to employees as the Palo Alto, California-based company works to meet a target of delivering half a million cars this year.


“When looking at our actual profitability, it is very low at around 1% for the past year. Investors are giving us a lot of credit for future profitability, but if, at any point, they conclude that’s not going to happen, our stock will immediately get crushed like a souffle under a sledgehammer!” Musk wrote in the email viewed by Bloomberg News.

Tesla did not respond to a request for comment.

The carmaker’s stock has skyrocketed almost 600% this year, in part on expectations it could join the S&P 500 Index -- it will on Dec. 21 -- and also helped by the fifth consecutive quarter of profit posted in October. Musk and Chief Financial Officer Zachary Kirkhorn have been focused on cost reductions for several quarters even as Tesla spends billions on new factories in Austin, Texas, and near Berlin to expand its global production and sales footprint.

“At a time like this, when our stock is reaching new heights, it may seem as though spending carefully is not as important. This is definitely not true!” Musk wrote in the email.

No Hostile Takeovers
Vehicle affordability is an issue the CEO has become increasingly concerned about as Tesla’s sales volumes grow beyond its onetime niche status. Musk has said he would be willing to sacrifice profitability to sell more and cheaper cars, and he has promised to launch a $25,000 model by 2023. Tesla’s cheapest vehicle currently is the Model 3, which starts at $37,990.

“Much more important, in order to make our cars affordable, we have to get smarter about how we spend money,” wrote Musk. “This is a tough Game of Pennies, requiring thousands of good ideas to improve part cost, a factory process or simplify the design, while increasing quality and capabilities. A great idea would be one that saves $5, but the vast majority are $0.50 here or $0.20 there.”

Musk was in Berlin Tuesday, where he received an innovation award from German publisher Axel Springer SE. The prize that has been given to other billionaire American entrepreneurs including Amazon.com Inc. CEO Jeff Bezos and Facebook Inc. CEO Mark Zuckerberg.

When asked at the award ceremony if Tesla would consider buying another automaker, Musk declined to rule it out but said any future deal would have to be mutually agreeable. “We’re definitely not going to launch a hostile takeover,” he said. “If somebody said, hey, we think it would be a good idea to merge with Tesla, we’d certainly have that conversation.”

Tesla is building its first European factory near the German capital in a major attack on the country’s auto establishment. Musk, who is pushing to get the project up and running by July, said he would spend the night in a conference room in the unfinished factory.

“When we have the opening for Giga Berlin we’re gonna have just a big party,” he said.