Tesla is struggling to produce Model 3s on schedule. So Elon Musk is having the company work around the clock.
Musk also wants to personally approve any Tesla expenditure of more than $1 million.
Elon Musk thinks it’s time that Tesla generates a profit. In an email to staff, the Tesla CEO wrote that he has asked the electric vehicle manufacturer’s finance team to comb through every expense and “cut everything that doesn’t have a strong value justification.”
Tesla is navigating uncharted territory with the production of its first mass-market vehicle, the Model 3, and struggled to meet Musk’s initial and ambitious deadlines of building 5,000 cars a week by the end of 2017.
The road to production has been both rocky and expensive for Tesla, which posted a $675 million loss on $2.7 billion in revenue for the fourth quarter of 2017.
Now, Musk says, any expenditure above $1 million for the next year must be personally approved by him.
“A fair criticism leveled at Tesla by outside critics is that you’re not a real company unless you generate a profit, meaning simply that revenue exceeds costs,” he wrote in an email obtained by Jalopnik. “It didn’t make sense to do that until reaching economies of scale, but now we are there.”
“All capital or other expenditures above a million dollars, or where a set of related expenses may accumulate to a million dollars over the next 12 months, should be considered on hold until explicitly approved by me,” he continued. “If you are the manager responsible, please make sure you have a detailed, first principles understanding of the supplier quote, including every line item of parts & labor, before we meet.”
Musk also wrote that the company has made a bit more progress toward meeting his adjusted goal of building 2,500 cars a week; Tesla has completed three weeks of producing more than 2,000 Model 3s a week. Last week, Musk wrote, Tesla produced 2,250 Model 3s a week.
After a series of upgrades to both of Tesla’s factories — which would halt production of the Model 3 for three to five days starting this week — Musk said Model 3 production should be at 3,000 to 4,000 per week in May, and 6,000 a week by the end of June, with a second set of upgrades.
But to meet that goal of 6,000 cars a week, Musk wrote that the Tesla factory in Fremont will produce Model 3s around the clock, 24 hours a day, seven days a week, and will add 400 people per week at both factories for several weeks.
“This means that we will be adding another shift to general assembly, body and paint. Please refer anyone you know who you think meets the Tesla bar for talent, drive and trust. Between Fremont and Giga, Tesla will be adding about 400 people per week for several weeks.”
However, the increase in hours comes at a fragile time. A new report from the Center for Investigative Reporting found that Tesla failed to report some of its serious injuries, and cited former employees who complained that Tesla put manufacturing above safety concerns. A Tesla spokesperson denied all of the claims in the report to CIR.
We’ve reached out to Tesla and will update when we hear back.
Here’s the full email:
Progress
First, congratulations are in order! We have now completed our third full week of producing over 2000 Model 3 vehicles. The first week was 2020, the second was 2070 and we just completed 2250 last week, along with 2000 Model S/X vehicles.
This is more than double Tesla’s weekly production rate last year and an amazing feat in the face of many challenges! It is extremely rare for an automotive company to grow the production rate by over 100% from one year to the next. Moreover, there has simultaneously been a significant improvement in quality and build accuracy, which is reflected in positive owner feedback.
Starting today at Giga and tomorrow at Fremont, we will be stopping for three to five days to do a comprehensive set of upgrades. This should set us up for Model 3 production of 3000 to 4000 per week next month.
Another set of upgrades starting in late May should be enough to unlock production capacity of 6000 Model 3 vehicles per week by the end of June. Please note that all areas of Tesla and our suppliers will be required to demonstrate a Model 3 capacity of ~6000/week by building 850 sets of car parts in 24 hours no later than June 30th.
Any Tesla department or supplier that is unable to do this will need to have a very good explanation why not, along with a plan for fixing the problem and present that to me directly. If anyone needs help achieving this, please let me know as soon as possible. We are going to find a way or make a way to get there.
The reason that the burst-build target rate is 6000 and not 5000 per week in June is that we cannot have a number with no margin for error across thousands of internally and externally produced parts and processes, amplified by a complex global logistics chain. Actual production will move as fast as the least lucky and least well-executed part of the entire Tesla production/supply chain system.
By having a Model 3 subsystem burst-build requirement of 6k by the end of June, we will lay the groundwork for achieving a steady 6k/week across the whole Model 3 system a few months later.
As part of the drive towards 6k, all Model 3 production at Fremont will move to 24/7operations. This means that we will be adding another shift to general assembly, body and paint. Please refer anyone you know who you think meets the Tesla bar for talent, drive and trust. Between Fremont and Giga, Tesla will be adding about 400 people per week for several weeks.
Precision
Most of the design tolerances of the Model 3 are already better than any other car in the world. Soon, they will all be better. This is not enough. We will keep going until the Model 3 build precision is a factor of ten better than any other car in the world. I am not kidding.
Our car needs to be designed and built with such accuracy and precision that, if an owner measures dimensions, panel gaps and flushness, and their measurements don’t match the Model 3 specs, it just means that their measuring tape is wrong.
Some parts suppliers will be unwilling or unable to achieve this level of precision. I understand that this will be considered an unreasonable request by some. That’s ok, there are lots of other car companies with much lower standards. They just can’t work with Tesla.
Profit
A fair criticism leveled at Tesla by outside critics is that you’re not a real company unless you generate a profit, meaning simply that revenue exceeds costs. It didn’t make sense to do that until reaching economies of scale, but now we are there.
Going forward, we will be far more rigorous about expenditures. I have asked the Tesla finance team to comb through every expense worldwide, no matter how small, and cut everything that doesn’t have a strong value justification.
All capital or other expenditures above a million dollars, or where a set of related expenses may accumulate to a million dollars over the next 12 months, should be considered on hold until explicitly approved by me. If you are the manager responsible, please make sure you have a detailed, first principles understanding of the supplier quote, including every line item of parts & labor, before we meet.
I have been disappointed to discover how many contractor companies are interwoven throughout Tesla. Often, it is like a Russian nesting doll of contractor, subcontractor, sub-subcontractor, etc. before you finally find someone doing actual work. This means a lot of middle-managers adding cost but not doing anything obviously useful. Also, many contracts are essentially open time & materials, not fixed price and duration, which creates an incentive to turn molehills into mountains, as they never want to end the money train.
There is a very wide range of contractor performance, from excellent to worse than a drunken sloth. All contracting companies should consider the coming week to be a final opportunity to demonstrate excellence. Any that fail to meet the Tesla standard of excellence will have their contracts ended on Monday.
Btw, here are a few productivity recommendations:
- Excessive meetings are the blight of big companies and almost always get worse over time. Please get of all large meetings, unless you’re certain they are providing value to the whole audience, in which case keep them very short.
- Also get rid of frequent meetings, unless you are dealing with an extremely urgent matter. Meeting frequency should drop rapidly once the urgent matter is resolved.
- Walk out of a meeting or drop off a call as soon as it is obvious you aren’t adding value. It is not rude to leave, it is rude to make someone stay and waste their time.
- Don’t use acronyms or nonsense words for objects, software or processes at Tesla. In general, anything that requires an explanation inhibits communication. We don’t want people to have to memorize a glossary just to function at Tesla.
- Communication should travel via the shortest path necessary to get the job done, not through the “chain of command”. Any manager who attempts to enforce chain of command communication will soon find themselves working elsewhere.
- A major source of issues is poor communication between depts. The way to solve this is allow free flow of information between all levels. If, in order to get something done between depts, an individual contributor has to talk to their manager, who talks to a director, who talks to a VP, who talks to another VP, who talks to a director, who talks to a manager, who talks to someone doing the actual work, then super dumb things will happen. It must be ok for people to talk directly and just make the right thing happen.
- In general, always pick common sense as your guide. If following a “company rule” is obviously ridiculous in a particular situation, such that it would make for a great Dilbert cartoon, then the rule should change.
If there is something you think should be done to make Tesla execute better or allow you to look forward to coming to work more (same thing in the long term), please send a note to emdesk@tesla.com.
Thanks for being such a kickass team and accomplishing miracles every day. It matters. We are burning the midnight oil to burn the midnight oil.
Elon
>>> Up
* Airbus Upgraded to Buy at Jefferies
* Altria Downgraded to Neutral at Citi
* Baloise Upgraded to Outperform at MainFirst; PT 170 Francs
* EDP Renovaveis Upgraded to Hold at Berenberg
* Deutsche Beteiligungs AG Raised to Buy at Oddo BHF; PT 45 Euros
* Norsk Hydro Raised to Buy at DNB Markets; Price Target 58 Kroner
* Rio Tinto Upgraded to Buy at HSBC; PT 44.50 Pounds
>>> Down
* Juniper Downgraded to Sell at Goldman; PT $21
* KAZ Minerals Cut to Reduce at HSBC; Price Target 7.60 Pounds
* Tele Columbus Downgraded to Neutral at JPMorgan; PT 8.10 Euros
>>> Initiation
* Atenor Rated New Hold at Kepler Cheuvreux; PT 50 Euros
* Banco BPM Reinstated at JPMorgan With Neutral; PT 3.30 Euros
* BPER Banca Rated New Neutral at JPMorgan; PT 5.30 Euros
* UBI Banca Reinstated at JPMorgan With Overweight; PT 5.10 Euros
>>> Call
Asian equities advanced, helped by an encouraging start to U.S. earnings season, while Chinese bonds rallied after the nation’s central bank moved to support liquidity. The yen dipped amid a summit between U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe. Stocks gained in Japan, Australia and South Korea. China’s automakers declined after its government moved to allow foreign players take full ownership of their local ventures. The country’s 10-year bond yield fell the most since June after the People’s Bank of China cut the reserve requirement ratio for banks, part of its efforts to support credit amid a crackdown on shadow lending. The yen dropped on early signs that the Trump-Abe summit won’t see new trade demands from the U.S., reducing risk concerns.
Nikkei +1.49% Hang Seng +0.83% CSI +0.37% Shanghai +0.59% Shenzen +0.72%
Eur$ 1.2376 CNH 6.2850 CNY 6.2876 JPY 107.36 GBP 1.4306 CHF 0.9675 RUB 61.5829 WTI$ 67.08 +0.84%
S&P +0.87% EuroStoxx +0.03% Dax +0.06% FTSE +0.10% SMI +0.15%
Macro :
- VIX May Fall to 13 as S&P 500’s Poised for 2,800, Evercore Says
- Bitcoin’s Sudden Drop Snaps Seven Straight Days of Crypto Gains
- EU28 March Car Registrations Drop 5.3% Y/y to 1.793m Units
Keep an eye on :
- ASML NA : ASML Second Quarter Net Sales Forecast 2.8% Above Estimates
- AI FP : Air Liquide Signs New Contract With Covestro for Hydrogen
- CS FP : XL Group Rises on Report of $50/Shr Interest Prior to Axa Deal
- BAR BB : Barco First Quarter Revenue EU245.2 Mln Vs. EU246.2 Mln Y/Y
- BMPS IM : Monte Paschi Reshuffles Management Structure, Names New COO
- BP/ LN : BP Says Output From IPA of Prudoe Bay to Decline Further
- CNE LN : Cairn Energy Drops Most in a Month as Aker BP Drills Dry Well
- CYBG LN : CYBG Says to Raise Provisions for Legacy PPI Costs by GBP350M
- BN FP : Danone Confirms 2018 Guidance as 1Q LFL Sales Beat Guidance
- DTE GY : T-Mobile Shareholders Take Note, Sprint's Not So Cheap: Gadfly
- DEZ GY : Deutz: Carrying Amounts Deutz Dalian Engine Need to Be Adj Down
- DIS US : ESPN, Fox Sports to Jointly Bid for TV Rights for UFC: Variety
- EDPR PL : EDP Renovaveis 1Q Electricity Generation Rises 14% Y/y
- GET FP : Getlink 1Q Revenue Rises 4.1%; Co. Sees 2022 Ebitda >EU735m
- GBT FP : Guerbet 1Q Sales Down 9.8% to EU183.2M
- HMSO LN : Hammerson Withdraws Recommendation for Acquisition of Intu
- HEMF SS : Hemfosa Fastigheter First Quarter Rental Income Meets Estimates
- INTU LN : Hammerson Withdraws Recommendation for Acquisition of Intu
- IIA AV : Starwood Seeks to Grow Austrian Landlords After $1 Billion Bid
- MS IM : Tel Italia, Mediaset Finalizing Commercial Content Partnership
- MRL SM : Merlin Buys Office Building in Lisbon for EU33.3m: Statement
- OBEL BB : Orange Says Willing to Pay Cash for Cable Operator Voo: L’Echo
- OR FP : L’Oreal Adopts All Annual Meeting Proposals, Will Buy Back Shrs
- UG FP : *DJ Peugeot Group March EU New Car Registrations Rose 60% -ACEA
- PIRC IM : Pirelli Says Provera to Propose New Organizational Model May 14
- SGO FP : *SIKA CHAIRMAN: 'NOT AT ALL INTERESTED' TO BID FOR SAINT GOBAIN
- RCO FP : Remy 4Q Organic Revenue Growth Beats Forecast; Outlook Confirmed
- SKG IM : International Paper-Smurfit Merger Seen Helping Price Stability
- VPK NA : Vopak First Quarter Adjusted Ebitda EU190.2 Mln
- SAF FP : LUV: One dead, seven injured after Southwest jet engine blows ou
- SIKA SW : SWH: Burkards, Saint-Gobain Determined to Complete Sale Sika
- SREN SW : Swiss Re CEO Rules Out Cash Call for Any Softbank Deal, NZZ Says
- TIT IM : Tel Italia, Mediaset Finalizing Commercial Content Partnership
- TIT IM : Tel. Italia Says Most Elliott Proposals Premature, Not Feasible
- TIT IM : Telecom Italia Says Board of Auditors Decision ’Illegitimate’
- ROSE SW : Zur Rose First Quarter Sales CHF297.6 Mln
After Hours Summary: LRCX -6.7%, IBM -5.7%, BMI -5.3%, CSX +4.3%, ISRG +3.8%, UAL +2.8% following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: CSX +4.3%, ISRG +3.8%, UAL +2.8%, IBKR +1.2% (light volume)
Companies trading higher in after hours in reaction to news: TLGT +15.9% (received approval of its ANDA of Clobetasol Propionate Cream USP, 0.05%; to launch product in Q2), RIGL +6.1% (confirms FDA approval of TAVALISSE for the treatment of thrombocytopenia in adult patients with chronic immune thrombocytopenia; tgt raised to $8 at BMO Capital Markets), NSC +1.8% (following CSX results), TSLA +1.7% (after Elon Musk letter to employee circulated indicating internal target of 3-4K Model 3 weekly production rate next month and 6K by the end of June), JBLU +1% and AAL +1% (following UAL results), SIG +0.8% (CEO disclosed the purchase of 8980 shares worth ~$350K)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: LRCX -6.7%, IBM -5.7%, BMI -5.3%, ETH -2.4% (Ethan Allen sees Q3 EPS below estimates; started repurchasing shares in April)
Companies trading lower in after hours in reaction to news: AGLE -10.5% (commences underwritten public offering of 4.5 mln shares of its common stock), MBII -4.4% (to offer shares of common stock in an underwritten public offering), SJI -3.9% (to conduct concurrent registered public offerings of up to $325 million of shares of its common stock and 5.0 million Equity Units)
Semi/tech names lower following LRCX / IBM results: AMAT -2.4%, KLAC -1.9%, MU -1.8%, SMH -0.9%, XLNX -0.7%, NVDA -0.6%, ASML -0.5%![]()