Please ensure Javascript is enabled for purposes of website accessibility

Tesla to Cut Costs (Again)

By Daniel Sparks – May 17, 2019 at 2:47PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Following a massive loss in Q1, the automaker is focusing on eliminating unnecessary expenses.

Tesla (TSLA 0.07%) is undergoing another round of cost cuts, electric-vehicle news website Electrek reported Thursday afternoon. In an email to employees, CEO Elon Musk detailed a concerted effort to eliminate all unnecessary costs.

This cost-cutting initiative follows several recent big programs from the company to reduce expenses and cut any avoidable capital expenditures. Amid the Model 3 production ramp-up last year, Tesla moved to 24/7 operations at its factory in Fremont Factory while simultaneously implementing a plan for the company's finance team to review all large expenses. Then, earlier this year, Tesla announced a 7% reduction to its full-time workforce.

The electric-car company's latest cost-cutting initiative comes as Tesla is trying to move closer to becoming sustainably profitable after reporting a big loss in its first quarter.

An employee working on a Model X at Tesla's factory in Fremont, California.

Model X in Tesla factory in Fremont, California. Image source: Author.

Getting "hardcore"

Executives at Tesla, including CFO Zach Kirkhorn and Musk himself, will be reviewing all expenses. It is "extremely important" to "examine every expenditure at Tesla, no matter how small," Musk said in the email, which was obtained by Electrek. The company only has "about 10 months at the Q1 burn rate to achieve breakeven!" Musk added.

Examples of payments to be examined as part of the program include "parts, salary, travel expenses, and rent," Musk said. He admitted the program is "hardcore," but said it's "the only way for Tesla to become financially sustainable and succeed in our goal of helping make the world environmentally sustainable."

Financial troubles

The capital-intensive nature of the automobile business is weighing heavily on Tesla as the company attempts to deliver its most affordable and highest-volume vehicle yet -- the Model 3 -- in more markets.

In Tesla's first quarter of 2019, the company lost $702 million. In addition, negative free cash flow and the repayment of a $920 million bond meant Tesla's cash position fell $1.5 billion sequentially to $2.2 billion. Worse-than-expected total vehicle deliveries as the company's overseas expansion faced more challenges than expected and as Model S and X shipments tanked didn't help.

Helping buffer its financial headwinds, the company raised $2.7 billion in capital through equity and debt earlier this month. But, as of Tesla's first-quarter update in late April, management doesn't expect to be profitable on a GAAP basis until the third quarter of this year. It's no surprise, therefore, that it's focusing intensely on reducing expenses.

Tesla investors should look for the automaker to eventually achieve a level of financial stability, allowing it to avoid such regular cost-cutting initiatives. Programs like this may take management's eye off the bigger picture and delay longer-term plans.

Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$283.15 (0.07%) $0.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.