April 18, 2018
Elon Musk made more news Tuesday with the leak of an internal email--first reported by Jalopnik--that details Tesla’s plans to increase Model 3 production. Musk noted that Tesla will be adding a third shift at the Fremont assembly facility and hiring "400 people per week for several weeks" between Fremont and the company's Gigafactory in Sparks, Nevada.
The key takeaway is that Tesla will be adding costs to its production system, and doing so just as the launch of the Model 3 is, as I have noted in several Forbes columns, stretching Tesla's financial resources to the pain point. Musk's pronouncements always need to be parsed, and I am sure there will be other articles today that focus minutely on his plans for Model 3 production ramp-up. The email noted a “burst-rate” production target of 6,000 Model 3s per week by the end of June, but also implied Tesla will have to implement another extended shutdown in Model 3 production in May to tweak the production process.
I’d rather focus on Tesla’s profitability, and Musk’s pronouncement that Tesla would be running “24/7” has to be measured in terms of its impact on margins. First of all, there is no auto plant in the world that runs “24/7”--machines need maintenance or they will break--but even accounting for Musk’s tendency to exaggerate, adding a third shift is a momentous decision. Auto plants in Japan--the mothership for lean manufacturing methods--rarely run three shifts a day, and the U.S automakers generally add capacity by going to a “three-crew” system of production rather than hiring another shift’s worth of workers.
Musks Leaked Email Raises More Questions About Tesla Than It Answers
Auto industry navel-gazing aside, though, the “Profit” section of Musk’s memo was the most disappointing to me. I wanted to hear from Musk some of the bravado he flashed in his tweet last week--Tesla will be cash flow positive in the third and fourth quarters and "obv" won’t need to raise capital. Instead, there were no figures at all, other than a new policy that Musk must personally approve any expenditure totaling more than $1 million. With so many articles in the financial media questioning Tesla’s financial strength, I figured Musk would reassure employees on that front, but I didn't get that from the email.
So, Musk's memo raised more questions than it answered. The problem facing potential investors is the mass of uncertainty that reigns at Tesla. It's just impossible to tell what the financial condition of this company is on a day-to-day basis, and looking at the stock chart is not a good guide. There is a long list of I don't knows at Tesla:
I don't know when Tesla is going to report first quarter earnings. It is amazing to me that TSLA hasn't yet set a report date for a quarter that ended on March 31st. While some analysts will hang on the production figures in Musk's memo, the bond market needs to know how much cash Tesla burned in the first quarter.
I don't know the core profitability of the Model 3. This was raised in a Bernstein note this week, which questioned whether the Model 3 will ever hit Tesla's 25% gross margin target. Please do not underestimate the extra fixed costs that are added by going to three-shift production. So, if it takes "24/7" to achieve what Musk referred to as "economies of scale" in his e-mail, the addition of another shift will likely erode all the economic benefits of the extra units produced.
I don't know how one person can possibly handle every major task at a multinational. I don't doubt Musk's marketing genius, but when he used the phrase "common sense" in his email, I did break a smile. Common sense would dictate that Tesla needs a Chief Operating Officer. Don't forget that since Elon's cousins--Peter and Lyndon Rive--left SolarCity last year after its merger with Tesla was finalized, it would appear that Elon has full operating responsibility at SCTY as well as managing the Tesla Motors operations in Fremont and Sparks. While I don't doubt his passion, no human being could possibly do all those jobs.
When Tesla finally reports its first quarter financial results, I am convinced that the balance sheet will show that TSLA's financial resources are stretched thin. There was nothing in Musk's email to disabuse me of that notion, and the extra costs he is adding to production make me believe the second quarter will be worse than the first. That will further tax Tesla’s balance sheet, and the fact that Tesla's senior management resources seem just as stretched is not reassuring.
Related Stories
Latest News
Top news around the world
Coronavirus Disease

Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus.

Most people infected with the COVID-19 virus will experience mild to moderate respiratory illness and recover without requiring special treatment. Older people, and those with underlying medical problems like cardiovascular disease, diabetes, chronic respiratory disease, and cancer are more likely to develop serious illness.

Around the World

Celebrity News

> Latest News in Media

Watch It
Kourtney Kardashian & Travis Barker Are ENGAGED
October 17, 2021
PeL88fYrQ8g
Kate Middleton Stuns in Throwback Dress From 10 Years Ago
October 17, 2021
6mgB2_e-fS8
Blake Lively Trolls Ryan Reynolds After His Major Career News
October 17, 2021
MAXNG2bO0Qs
Jamie Lee Curtis talks 'Halloween Kills' and Laurie Strode's Legacy
October 14, 2021
-xyHjfTA2SY
Nicholas Braun, Jeremy Strong, Brian Cox and the cast of ‘Succession’ on the Red Carpet
October 14, 2021
O19yMBvhR48
Dave Chappelle Ignites Controversy, 'Halloween Kills' Hits Theaters | The Take
October 14, 2021
xOIUz0WuFS8
Disick ‘going crazy’ over Kourtney Kardashian, Travis Barker engagement | Page Six Celebrity News
October 18, 2021
JWOqwRAFNhI
Vicki Gunvalson accuses ex Steve Lodge of cheating, lying and using her | Page Six Celebrity News
October 15, 2021
3RB_p9_FZ-Y
Katey Sagal hit by car while crossing the street, taken to hospital | Page Six Celebrity News
October 15, 2021
5kT2IIVMy0o
Mick Jagger Jabs Back at Paul McCartney Over 'Blues Cover Band' Remark | TMZ TV
October 18, 2021
PJILcZTVgv4
Kourtney's Finally Gettin' Hitched | The TMZ Podcast
October 18, 2021
oImJ5RKQ4iY
Tom Brady Says He Can 'Literally' Play QB 'Til He's 55 | TMZ TV
October 18, 2021
9kwGtku6sUg
TV Schedule
Late Night Show
Watch the latest shows of U.S. top comedians

Sports

Latest sport results, news, videos, interviews and comments
Latest Events
19
Nov
ASIAN CHAMPIONS LEAGUE: Group H
Sydney FC - Shanghai SIPG
17
Nov
UEFA NATIONS LEAGUE A: Group Stage
Spain - Germany
14
Nov
UEFA NATIONS LEAGUE A: Group Stage
Germany - Ukraine
08
Nov
ENGLAND: Premier League
Manchester City - Liverpool
08
Nov
ENGLAND: Premier League
Arsenal - Aston Villa
08
Nov
SPAIN: La Liga
Valencia - Real Madrid
08
Nov
ITALY: Serie A
AC Milan - Verona
08
Nov
ENGLAND: Premier League
West Bromwich Albion - Tottenham Hotspur
08
Nov
ITALY: Serie A
Bologna - Napoli
08
Nov
ITALY: Serie A
Genoa - Roma
08
Nov
ITALY: Serie A
Atalanta - Inter Milan
08
Nov
ITALY: Serie A
Lazio - Juventus
08
Nov
GERMANY: Bundesliga
Bayer Leverkusen - Borussia Monchengladbach
08
Nov
ENGLAND: Premier League
Leicester City - Wolves
08
Nov
GERMANY: Bundesliga
Wolfsburg - Hoffenheim
08
Nov
SPAIN: La Liga
Real Valladolid - Athletic Bilbao
08
Nov
SPAIN: La Liga
Levante - Alaves
08
Nov
SPAIN: La Liga
Real Sociedad - Granada CF
08
Nov
ITALY: Serie A
Torino - Crotone
08
Nov
SPAIN: La Liga
Getafe - Villarreal
07
Nov
GERMANY: Bundesliga
Borussia Dortmund - Bayern Munich
07
Nov
ENGLAND: Premier League
Everton - Manchester United
07
Nov
ENGLAND: Premier League
Chelsea - Sheffield United
07
Nov
SPAIN: La Liga
Atletico Madrid - Cadiz
07
Nov
SPAIN: La Liga
Barcelona - Real Betis
07
Nov
GERMANY: Bundesliga
Augsburg - Hertha Berlin
07
Nov
GERMANY: Bundesliga
Stuttgart - Eintracht Frankfurt
07
Nov
GERMANY: Bundesliga
RB Leipzig - SC Freiburg
07
Nov
ENGLAND: Championship
Rotherham - Preston NE
07
Nov
ITALY: Serie A
Parma - Fiorentina
07
Nov
ENGLAND: Championship
Watford - Coventry
07
Nov
ENGLAND: Championship
Norwich City - Swansea City
07
Nov
ENGLAND: Championship
Blackburn - QPR
07
Nov
ENGLAND: Championship
Derby County - Barnsley
07
Nov
ENGLAND: Championship
Huddersfield - Luton
07
Nov
ENGLAND: Championship
Nottingham Forest - Wycombe Wanderers
07
Nov
ENGLAND: Premier League
West Ham United - Fulham
07
Nov
ENGLAND: Championship
Sheffield Wednesday - Millwall
07
Nov
ENGLAND: Championship
Brentford - Middlesbrough
07
Nov
ENGLAND: Championship
Birmingham - Bournemouth
07
Nov
SPAIN: La Liga
Sevilla - Osasuna
07
Nov
ITALY: Serie A
Benevento - Spezia
07
Nov
ENGLAND: Premier League
Crystal Palace - Leeds
04
Nov
CHAMPIONS LEAGUE: Group stage, Group G
Ferencvaros - Juventus
04
Nov
CHAMPIONS LEAGUE: Group stage, Group G
Barcelona - Dynamo K.
03
Nov
CHAMPIONS LEAGUE: Group stage, Group A
Salzburg - Bayern Munich
03
Nov
CHAMPIONS LEAGUE: Group stage, Group D
Atalanta - Liverpool
Find us on Instagram
at @feedimo to stay up to date with the latest.
Featured Video You Might Like
zWJ3MxW_HWA L1eLanNeZKg i1XRgbyUtOo -g9Qziqbif8 0vmRhiLHE2U JFCZUoa6MYE UfN5PCF5EUo 2PV55f3-UAg W3y9zuI_F64 -7qCxIccihU pQ9gcOoH9R8 g5MRDEXRk4k
Copyright © 2020 Feedimo. All Rights Reserved.