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Elon's last letter sends shock waves across Wall Street



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Posted on January 20, 2019 |
Stell Hanley

20 Jan, 2019 from Steve Hanley


As Tesla went through "production hell" with Model 3 last year, Elon Musk wrote that he underestimated the value of human workers. The Model 3 assembly line was the most automated in the world, but many of the machines were not calibrated properly or failed, which led to a delay. Tesla responded by hiring more workers, increasing her workforce by about 30%. On January 1

8, the company announced it released about 7% of its full-time workers and warned that earnings in the fourth quarter would be lower than in the previous quarter. In the third quarter there is a modest profit for the company of just under 4%. For the fourth quarter, Elon says the company will be profitable again, but the profit will be "small." The actual figures will not be officially issued until the next conference call with investors in early February. (At the same time, if you are interested, Vijay has published his forecasts.)

Musk justifies the decision to dismiss about 3,000 workers, saying the company should find ways to reduce the cost of its cars. "Looking ahead to our mission to accelerate the emergence of sustainable transport and energy that is important for life on Earth, we face an extremely challenging challenge: to make our cars, batteries and solar products cost-competitive with fossil fuels.

"While we have made great progress, our products are still too expensive for most people. Tesla has been producing cars for only a decade and we are facing massive, fortified competitors. The ultimate effect is that Tesla has to work much harder than other manufacturers to survive while building affordable and sustainable products. [T] The way forward is very difficult. This is not new to us – we have always faced significant challenges – but that is the reality we are facing. There are many companies that can offer a better work-life balance as they are bigger and more mature or in industries that are not so fiercely competitive. Attempting to produce affordable clean energy products on a scale necessarily requires extraordinary efforts and inexorable creativity, but success in our mission is essential to ensure that the future is good so we must do our utmost to achieve the cause . and improvements in production design are crucial to Tesla to achieve the economies of scale needed to produce the standard range (220 miles), the standard Model 3 interior at $ 35,000 and still a viable company. There is no other way. "

The news sent Tesla's warehouses in a free fall, falling by 13% during the trading day on Friday and broke Tesla for several places in the list of the most valuable car manufacturers – from # 4 to #. And, of course, he brought the usual assortment of "I told you years ago Tesla is not anything" on White Street. One of them is Forbes collaborator Jim Collins, who writes that the return of quarterly profits is exactly the opposite of what investors want to hear.

"This margin cut will show that the benefits of scale are not at all in Tesla, and this is a virtual lethal blow to bloody share arguments. Automobile companies are generally perceived as a monstrous mass of fixed costs that can be amortized over production, and thus more output must be equal to both higher dollar profits and higher profit margins. a large number of highly expensive, high-yield versions of Model 3 in the third quarter, and then many of the more affordable Model 3 Medium Scope in the 4th quarter.)

Brett Kenlow, writing for The Street worried that the fall in stock prices will make it hard for Tesla to repay $ 920 million in convertible bonds that will come on March 1. "In the third quarter, Tesla was a positive and profitable cash flow, and as long as this is the case in the fourth quarter, Tesla must be able to make the payment in March, even if it is in cash. However, it will come in a terrible time for Tesla as it tries to open its factory in Shanghai before the end of the year, continues to expand its Supercharger network and has a number of new models. "

Tesla for the last 15 years has acted a high-ranking act. Many analysts and journalists claimed Tesla's impending death 10 years ago. Its stock is one of the most volatile and has always been. Chances are that it will continue to be. The cost of converting these convertible bonds is $ 359.88. It is always possible that Tesla's stocks can exceed this conversion price in time to pay off part of the debt with shares. After all, it's been over a month and we have seen crazier things than 20% rally in the price of Tesla's shares for a short period of time, "Kenvel wrote.

Everything comes down to the trust of Elon Muskus or not? Some very big investors – like Tencent, Baillie Gifford, Ron Baron and Larry Ellison – have bet on Elon and Tesla. Perhaps nerve shareholders need to pay more attention to what the company's main investors say, not the words of several so-called analysts paid to mix the pot.

As Elon says, the upcoming road will be tough. The 3000 people who are fired can not be very happy to be unemployed. Despite the pressure and difficult working conditions, Tesla is still considered one of the best places to work in the industry. The bottom line is that Musk knows that his overall plan relies on the production of electric cars that more people can afford. This is good news for the revolution of electric cars ahead, but the road will not always be smooth.


Tags: Elon Musk, Tesla, Tesla Jobs, Tesla Abbreviations, Tesla Model 3


About the Author

Steve Hanley Steve writes about the interface between technology and sustainability from his home on Rhode Island and elsewhere The singularity can take it. His motto is "Democracy is socialism." Do you have a problem with this?

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