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24 Feb 2017

Elon Musk and Tesla Inc. under fire

The last few days of Elon Musk are certainly not the best of his career. The famous Paypal founder and creator of Space-X is facing troubles concerning the financial condition of Tesla Inc. and pressure from United Automobile Workers that want to unionize the company. Musk said that Tesla might come close to the edge because of the preparations for the launch of its new electric car model.

Musk told investors that “the company has burned a lot of cash for the launch of the Tesla Model 3” and that he is considering options for raising capital so that risk will be reduced. He added that the upcoming model doesn’t require any additional outside funding on an effort to not create panic. Unfortunately for him, Tesla shares tumbled 5.8% on Thursday which is the biggest percentage for one day in the last 8 months.

Tesla Inc. is facing a negative cash flow since 2014 and has posted a quarterly profit only twice since going public. The American car company is considered a pioneer in producing electric cars with excellent specifications and superb performance. The upcoming Model 3 was presented in March 2016 resulting to 325.000 orders in just a week. These reservations represent potential sales of around 14 billion US dollars. The company had to limit the orders in 2 cars per person to satisfy the demand.

Analysts say that new car makers tend to underestimate the needs for capital even if they are in a very competitive sector like the automotive industry. They note that the production and presentation of a new model for traditional car makers like BMW, Mercedes etc. is not hazardous while for Tesla is always a bet if everything will go well.

This is not the only problem that Musk has to deal with. Earlier in February, Jose Moran in his blog on Medium.com wrote about some alarming situations that occur in the manufacturing plant of Tesla in Fremont, California. Moran painted working conditions there with grim colors. He wrote about people getting injured even if it could be prevented, the lack of manpower and mandatory overtime which he couldn’t avoid so he wouldn’t be a problem for the management. He noted that the hourly compensation is $17 to $21 while in the county where the plant is based it is at least $28. He complained also for the absurd prices of the local house market which make many workers commute every day 2 hours, before and after long shifts.

Workers have contacted UAW trying to protect their interests. They accuse the management of the company that it tries to scare people from joining UAW or talking against the company. Elon Musk said that there would be no benefit for the workers if they joined the Union. In a teleconference with investors he counter attacked saying that a lot of Tesla employees have expressed concerns about being approached by UAW and that Moran is de-facto employee of the Union. UAW has denied the allegations.

Limited production of the Model-3 will start in July 2017 and by September 2017 is planned to ramp up to exceed 5.000 vehicles per week.