Musk's Sharp Eye Keeps Focus on Costs

Musk's Sharp Eye Keeps Focus on Costs

This week, Tesla CEO, Elon Musk emailed his employees cautioning the team to control spending regardless of the fact that Tesla shares are trading at a record high with its upcoming inclusion in the S&P 500 on 21 December.

Tesla’s expenditure has been significant this year with costs being plowed into getting new factories built in Austin and Berlin while investing in renovations of the paint facility at its Fremont assembly plant.

In his latest email, Musk said, “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!”

This is not the first time Musk has called on his staff to keep their eye on costs. In May 2019, the Tesla boss sent out a company-wide email requesting that everyone takes “hardcore” measures to cut down on spending. Even though the EV manufacturer raised $2 billion in one month, it would only see them through for 10 months if they carried on at their spending rate. In that email, Musk said while Tesla’s CFO would review each and every expense request, he would personally sign off on every 10th page of expenses.

You don’t become one of the world’s richest men by being a spendthrift and his email emphasized that although the company’s share price is unprecedented, cutting back on spending is more important than ever. The CEO keeps a sharp eye on operations and the purse strings while constantly innovating and working smarter.

Musk also took swift action when the pandemic started to take hold affecting auto sales globally. Tesla had to temporarily cut some of its employees’ pay and dismissed staff after going through an annual performance review process. Once Tesla got through the initial COVID storm, they reinstated employees’ pay and engaged with new contractors to restore its workforce numbers.

In October this year, after Tesla’s earnings report for its best quarter in history, Musk said, “We continue to grow as fast as we can while focusing on cost control and quality.”

Tesla’s stock price has been and will continue to be a fascinating thing to watch. The dramatic stock price exceeded expectations, even for the Tesla CEO himself. Earlier in the year, Musk tweeted, “Tesla stock price is too high.”

But the TSLA shares have shown no signs of slowing down and continues to surge. The share price is up 599% year to date, and 770% over the past 12 months, and its market valuation hit $500 billion this week. A lot of Tesla’s profits have partly been aided through “green” regulatory credits. However, these credits may fade away in the next few years as competitors grow in the electric vehicle space and are then able to collect on their own credits.

There have been slight fluctuations this week with Tesla trading above $580 on Tuesday and when the market closed on Wednesday, the TSLA share price was at $568.82.

Musk’s email from Tuesday is shared below with full text:

From: Elon Musk
To: Everybody
Subj. Costs are extremely important!
Date: Dec. 1, 2020

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!

When looking at our actual profitability, it is very low 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!

Much more important, in order to make our cars affordable, we have to get smarter about how we spend money. 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.

In order to make the electric revolution happen, we must make electric cars, stationary batteries and solar affordable to all.

Thanks and great working with you as always,