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Dec 1, 2020

Musk urges Tesla employees to pinch pennies, buoy surging shares

Bruce Murray discusses Tesla

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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 per cent 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 per cent this year, in part on expectations of joining the S&P 500 Index -- which it will do on Dec. 21 -- and of posting a fifth consecutive quarter of profit, which it did 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 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.

Vehicle affordability is an issue the CEO has become increasingly concerned about as its 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 US$25,000 car by 2023. Tesla’s cheapest vehicle currently is the base level Model 3, which starts at US$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 US$5, but the vast majority are US$0.50 here or US$0.20 there.”