“We wouldn’t be against him having a different role. I don’t think he needs to be CEO,” said James Anderson, head of global equities for Baillie Gifford, a leading investment management firm who owns 7.7% of Tesla shares, making them the largest external shareholders.
What is the new strategy?
Elon Musk is a controversial character; however, in recent months he has been making good on his promises, from building the world’s largest battery within 100 days to successfully manufacturing a mass-market electric vehicle. Tesla has released a brand-new Model 3 retailing at Musk’s vision of only $35,000, months earlier than expected. The top of the range model 3 now has an impressive 325-mile range, whilst the $37,000 model can achieve 240 miles and the economy $35,000 model 220 miles. This smaller battery is one part of the cost saving but the other part has been more radical.
Closing down showrooms
To reach the targeted price Tesla decided to shut down 378 showrooms worldwide, letting go of thousands of retail employees. This move also fits with Tesla’s new policy of selling cars exclusively online.
Musk explains in his most recent letter, that these company decisions align with the aim of delivering even cheaper electric vehicles at a lower entry point, as well as contributing to helping cut the price of its higher-end Models (Model S and Model X).
Musk under fire
So, why are investors saying Musk should not be CEO? Well… Musk has gained notoriety for his regular twitter rants and comments. This may be one of the reasons James Anderson said “We need to differentiate the company from him,” in an interview with Bloomberg. Following from his last major hiccup when he claimed he had secured funding to make Tesla private again, which lead him to be forced to resign as chairman and pay a $20 million fine, Musk’s recently tweeted that Tesla will be producing 500,000 cars this year.
This information did not align with company guidance, even though Musk corrected his tweet within a few hours saying, Tesla would make about 400,000 cars and would be producing at an annual rate of 500,000 cars by the end of the year. This is in line with the company’s guidance, however, this correction did not stop the SEC complaining to a federal judge. Which of course caused big problems for Tesla.
Musk also says. Tesla does not “expect to be profitable” during the first quarter of 2019 as it has undergone “a lot of one-time charges”, as well as having numerous delivery delays caused by shipping to Europe and China. He predicted that the company will be making “a tiny profit” for the time being. However, the price of Model 3 has been seen as essential to reaching the level of sales Musk has targeted.
The company writes in a blog post: “Shifting all sales online, combined with other ongoing cost efficiencies, enable us to lower all vehicle prices by about 6% on average, allowing us to achieve the $35,000 Model 3 price point earlier than we expected”
Further price cuts
In addition to all of this, the company has made an announcement of major price cuts of up to $18,000 to both Model S and Model X. However, this has not come without a backlash. Current owners of these premium models are unhappy having paid the higher price whilst the new price will cause highly accelerated depreciation of their vehicles.
Here is a breakdown of the cuts:
So, will Musk’s position of CEO be cut like the car prices? We have to wait and see what the future holds for Elon Musk and Tesla. He has made some smart business decisions and is undoubtedly the face of the company. If Tesla keeps pushing Musk out, they may be pushing consumers out with him and this may be a risk Tesla are not willing to take yet.
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