Report: Tesla CEO Elon Musk Threatens Firings Over Poor Results In China (Update)

2 years ago by Jay Cole 52

Tesla CEO Elon Musk - Produce Or Get Out

Reuters Report: Tesla CEO Elon Musk To Country Managers – Produce Or Get Out

Once Thought To Be A Market As Large As America For Tesla, China Has Thus Far Disappointed

Once Thought To Be A Market As Large As America For Tesla, China Has Thus Far Disappointed

Less than 24 hours before Tesla Motors is set to release fourth quarter and full year earnings, Reuters is reporting that CEO Elon Musk is threatening to fire and/or demote executives responsible for poor sales results of the Model S in China.

Probably not the best timing on that.

Update (Feb 11, 12:00pm): Details on recent dismissal added below

Multiple sources have indicated to the news agency that Mr. Musk has been a lot more direct (and upset) with his employees over a dismal result in China since he first announced that sales had been “unexpectedly weak” in China at the NAIAS in Detroit in January.

Musk said at the time Tesla understood the problem; specifically poor communication with the Chinese people over the charging and range abilities of the Model S, and that the company will “be in pretty good shape probably in the middle of the year.”

Well, maybe they won’t be if a Reuters report on a email the CEO circulated to his employees is accurate.

Reuters says that an internal email was sent to managers from Musk in late January, which basically threatened to fire or demote them if Tesla is “not on a clear path to positive long-term cash flow.”

According To CEO Elon Musk, The Model S Pricetag Of About $120,000 (USD) Isn't The Issue In China, It Is The Lack Of Understanding Around The Car's Ability To Get A Charge And Go On Long Trips

According To CEO Elon Musk, The Model S Pricetag Of About $120,000 (USD) Isn’t The Issue In China, It Is The Lack Of Understanding Around The Car’s Ability To Get A Charge And Go On Long Trips

It turns out, Tesla’s Chinese President Veronica Wu’s resignation in December might have just been one of the first fatalities of the new “fix it, or get it out” policy.  She last about 9 months on the job since former President Kingston Chang’s “resignation” in March.

The email tells those managers who are underperforming expectations at the company that they “will be asked to leave or assume a more junior role. This has already happened in China and will likely happen in some other countries, too.”

Update (Feb 11th, 12:00pm): Bloomberg is reporting that Tesla’s VP of Communications, June Jin has now left the company, after less than a year on the job according to a phone with Tesla China spokesman Gary Tao.  So it appears the purge may well be underway.

Yes!  We Finally Get To Make Use Of The Stock Footage Of The Tesla Model S In China!

Yes! We Finally Get To Make Use Of The Stock Footage Of The Tesla Model S In China!

When the Tesla Mold S first went on sale in 2013, the company had expected that the Chinese market may perhaps have been as large as that of the US market by 2015. However, nothing close to that reality has materialized so far.

Recent guidance has indicated the company expects the North American side of the business to be equal to, if not greater, than the rest of the world in 2015.

Reuters also added that the CEO, in a direct statement to his executive, said that they will be accountable for their decisions to “retain any personnel not involved in vehicle production” and that country managers must consider “dropping specialized roles … or even doing it personally in weak markets where a full-time person isn’t justified.”

“We have no choice in this regard. There is no way that we can afford to subsidize a region of any size in the long term without causing serious harm to the company.”

As at time of press, Tesla has had no comment on the matter.  We imagine the situation will be addressed upon release of the Q4 results tomorrow at 2pm (pacific) and in the subsequent conference call.

Currently in China, Tesla has nine stores and service centers spread over 6 cities.

Reuters

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52 responses to "Report: Tesla CEO Elon Musk Threatens Firings Over Poor Results In China (Update)"

  1. Bill Howland says:

    Well I’m afraid it has to come to this. Western news organizations keep printing stories of the ‘Great Depression’ in China (they only grew 7% overall last year, something any other country would die for), Musk apparently expected some model S sales, seing as the pollution problem in Beijing would tend to incentivise electric cars in general, and for Rich Communist Party members, Tesla in particular.

    The situation is getting apparently so severe that managers are effectively told by Musk: “Don’t hire another person to do THIS!! Do it YOURSELF as part of your JOB!”.

    Anyone who doesn’t will have the “Marvelous opportunity to work for someone ELSE”. hehe.

  2. Jon says:

    I don’t know much about china. But i think ev’s in general will sell badly until there is charging station at every apartment.

    1. pjwood1 says:

      Musk seems convinced things should be better, and he is right if buyers face more congested, slower roads. Function only explains so much in this fickle price segment. It has to weigh on marketing.

      What was Chinese unit guidance?

  3. Miggy says:

    Maybe the low Tesla sales are due to China offering competitive locally built EV’s along with the government EV incentives only applying to locally built EV’s

    1. Nicklas says:

      Now in the beginning I do not think price is an issue… There are plenty of rich executives that need a ride… And Tesla can give them that luxurious transport from A to B while they get to feel green…

      It must be something else…

      1. Stimpacker says:

        I’ve been to China many times. Rich executives certainly can EASILY afford the Model S. In fact, it’s considered cheap.

        The problem is, most of these rich executives live in big cities (duh). That means they live in penthouse/luxury condos. Where can they charge?

    2. Someone out there says:

      Yes I think that is a big part of it. The Tesla is an expensive car to begin with, then comes huge import tariffs on foreign cars while domestic brands are subsidized. Add the non-standard charging on top which means Tesla must have a huge infrastructure ready before the customers come.

      1. Mr. M says:

        There where around 50.000 Mercedes S-Class sold last year in china. And the base Mercedes S-Class is more expensive than the P85D in China. It’s not the price of the model S why it doesn’t sell.

    3. Cavaron says:

      Might be right – with e6 and Denza EV they have two 180 mile EVs.

      Could be a sign what may happen to Tesla in the US and EU if the 2017-generation of 200 mile EVs is coming (Leaf 2, Bolt, Zoe 2…).

  4. Speculawyer says:

    Electric cars still have a dim reputation in China due to all the NEVs and millions of electric bicycles. The people there want gas cars because they are ‘real’ cars. So Tesla needs to break that bad stereotype of electric cars in China.

  5. Timj says:

    1. not manufactured in China + bad service.
    2. not easy to charge.
    3. not suggested by government.
    4. heavy traffic.
    5. BYD Qin & Tang are better choice.(Free registration)

    1. Anon says:

      You’re a victim of Chinese Social Media:

      Horribly misinformed and spoiled beyond belief.

      1. Mr. M says:

        If every chinese man thinks this way, you know why they sell no teslas…

  6. Londo Bell says:

    For those who aren’t familiar with China – Tesla price range is at the luxury class, hence only the very wealthy population (very small) can afford it. Here’s the problem – unlike western civilization, many of those who are wealthy in China almost always have something to do with corruption – think about it – how can one get rich in a COMMUNIST country? Not only is China’s GDP in big trouble currently (it actually needs to sustain a 8+% growth due to its 2 billion population size), the prime minister of China is having a serious attack to those who are involved in corruption (2 of those just got killed via capital punishment, for corruption charges). What’s even worse is that, those who are wealthy (and often involved in corruption) also have DIRECT involvement with those in power, i.e. there is internal power struggle within the communist government right now, between the prime minister, the army generals, and many agency heads…

    In this type of atmosphere – should one expect the wealthy class to keep showing off their wealth by buying a Tesla?

    Mind you, the wealthy class don’t need to care about the environment, don’t need to care about not able to get a license registration when buying, say, a Mercedes or Audi (they are tied with government officials), and for those who do want to buy an EV due to both environmental and license registration reasons – there are lots of affordable option from Nissan’s Chinese affiliate, BYD, Chery, etc.

    Besides, anyone who can afford a NEW vehicle in China, usually have little to worry about duties/taxes (as long as they buy Chinese brand vehicles).

    That’s culture 101 to Musk, for free.

    1. Miggy says:

      @Londo Bell
      So well explained. Thank You.

    2. Mint says:

      “it actually needs to sustain a 8+% growth due to its 2 billion population size”

      How does that make any sense, even if we ignore your error about 2B?

      “In this type of atmosphere – should one expect the wealthy class to keep showing off their wealth by buying a Tesla?”

      So you’re saying the huge sales Mercedes and Audi get in China are coming to an abrupt end?

      1. Londo Bell says:

        Not here to argue – you really need to know the internal reality of China in order to know how car sales in China. It’s quite different from how the western societies (N. America and Europe). News articles in the US, such as Money CNN and CNBC, aren’t really good sources. Try Bloomberg, which is more Asian focused. This year, auto sales forecast will be down 7%, as reported by Bloomberg.

        In addition, because of this corruption situation, there was a dramatic change on those who attended the communist party’s “party meeting” last year vs the year before. 2 years ago (and earlier), it was all Audi and European cars that showed up in the parking lot; last year, all Chinese made vehicles.

        So, “Yes,” to your question.

      2. Londo Bell says:

        I meant to say, 200 Million. My apology.

        2 Billion is a direct translation from the Chinese language.
        200 Million is the actual number. Officially, it’s 140 Million, but there are lots of unreported population, due to size of country, birth policy, and, corruption.

        1. Londo Bell says:

          I stand corrected, again. It IS 2 billion (approximately).

          Again, 1.4 billion is the official number. But due to – ahem – corruptions and whatnot, there are tons of population that aren’t reported.

    3. Mr. M says:

      Maybe the tesla is to cheap to assume it as luxury car in china. Others might look down on you if you drive a “cheap” car.

      Not that i find the Model S cheap. But if money is no hindrance (high goverment position) why buy a “cheap” luxury car, better buy the best of the best. You can not impress others with a “cheap” luxury car.

      Why is model S cheap? If you compare the price of the model S85 in china to a base Daimler S-class:

      Model S: 103.000-152.000 $
      S-Class: 160.000-430.000 $

      The P85D is cheaper than the striped base S-Class. Also the model s offers no long wheel base (chauffeur-driven variant), no intensive air filtration and fragrancing system (smog in china!), no massage seats, no rear monitor system.

      Maybe the Model S is meant more for normal people in a chinese context, but those buy cheaper long range Chinese cars…

      Also if other drive for you, where is the fun in stomping the gas pedal in the Model S?

    4. Victor says:

      Londo Bell, your explanation is right on the money. There is an executive over there that’s going to loose his/her job over a situation he/she has no control over.

      1. Spider-Dan says:

        That same executive chose to accept the position, so…

    5. pjwood1 says:

      I disagree. China has wisely chosen to expand domestic consumption, up from 1/3 of their economy. this narrow “corruption” thesis doesnt fit all the entrepreneurial activity going on.

      1. Londo Bell says:

        Domestic consumption in China and entrepreneurship in China have little to do with how the wealthy people in China got their money from, don’t you think?

        You can’t justify the internal political and business environment simply with a blog post, let alone just several comments in the comment section. You need to be involved – directly or indirectly – in those in order to know how the Chinese environment is really like (in terms of business and government policies).

        The encouragement of domestic consumption by the communist party, in fact, has an opposite effect on purchasing luxury import items, and in this case, Tesla.

        1. pjwood1 says:

          The encouragement of domestic consumption creates a vacuum for those who come in to supply that consumption. Do you think governments have the talent to do this?

          I’d buy the argument its a culture that lives in high rises, before ideology, politics and corruption. Maybe trends are changing, as you state, but the numbers Tesla needs to sell are far from materializing, and that sounds like a recognition factor. There are no sales upon which a trend can take shape!

          Full disclosure: I am not from China

    6. kubel says:

      That would make sense, if only China was communist. It’s only communist by name.

      1. abc123 says:

        Exactly! It’s still a communist government though so they can authoritatively put the foot down whenever they feel like it.

        As of today, if you visit Shanghai you wouldn’t even realize you’re in a communist country. They have all the brands and storefronts that we have here. You see communist people buying things in those stores. If it were true communist like back in the late 50’s, everything would be state run and everybody would be wearing the same clothes… not one single person would be able to own more than the next.

        If you ran a manufacturing business that sells goods at western prices but paid the workers pennies a day, you would be rich too. Where’s the corruption in that? All I see is a human rights issue…But this China, they have different views on human rights.

        Ever since Deng Xiaoping opened the country up, China has become a changed nation.

        1. Mikael says:

          Different views on human rights compared to who and what country?

        2. Londo Bell says:

          “As of today, if you visit Shanghai you wouldn’t even realize you’re in a communist country.”

          “Where’s the corruption in that?”

          Using the same logic – one would also think that using hemp is legal everywhere in the US, or capital punishment is an enforceable legal ruling in every US States, simply by visiting Berkeley, California.

          You will need to learn how the central government and local government works with AND against each other in China, in order to understand the whole situation regarding how China’s economy and corruption go hand-in-hand.

    7. Timj says:

      You are wrong. Over 5% can afford it.
      Tesla is not expensive in china.cheaper than Ford F150

  7. Chris O says:

    I read an analysis that suggests that Tesla’s clientele mostly lives in apparent buildings and that a Kafkaesque bureaucracy makes it very hard to get charging equipment installed in/near those buildings.

    Firing executives is not going to solve that problem, offering an alternative like battery swapping might.

    1. PVH says:

      Read this article too, was making sense.

  8. Michael says:

    The Chinese customers who can afford this are also accustomed to long wheel base models when buying luxury sedans.

    They frequently have drivers, so extra space in the back is a very big deal, both for personal comfort and prestige.

    Maybe the take rate would be relatively small, but to not even have an extended version on offer is a big mistake, in my opinion.

    If I were building a luxury sedan for the Chinese market, you can bet I’d have limousine size back seats available, and I’d spend a lot making sure the back seats are better in some ways than the front in that version.

  9. Ahldor says:

    I think there has to be something more to the story than executives that don’t produce results. I don’t know what freedom they have, but one thing that could be limiting for the Tesla boss in China is Tesla’s ban of advertising.

    Most of the world has an open Internet where the word can be spread quickly, that is infact the reason why Tesla has grown to what it is today. But in China the Internet is strictly regulated and that is probably why Tesla can’t rely on spreading the word via social media etc. I think Tesla should consider to invest in having ads in China.

  10. EV says:

    Aren’t chinese people smart? LOL

    What exactly is so hard to understand about the car? How can it not be clear? You say it once and and its been said

    lol

  11. koz says:

    I believe Porsche’s Panamera and Chayene sell pretty well in China. Unless Porsche has a local JV making them, they suffer from the same tariff burdens and don’t even enjoy some of the EV benefits that Model S does. Tesla jumped into China with both feet and this is a real conundrum for them.

    1. Mr. M says:

      Also the wealthy chinese love SUVs because of their height. They think higher cars, higher status.

      Model S is not that high… So why buy a expensive car if no one can see it was expensive.

  12. kdawg says:

    The Kandi rent-an-EV vending machine seems to be doing well. Maybe they need a rent-a-Tesla service. Get butts in seats.

  13. Alonso Perez says:

    Tesla is not an established brand. In China image is very important and Tesla is not Mercedes or BMW. Perhaps without advertising Tesla is not projecting the kind of image it needs to in a market like that. Musk needs to understand that one size does not fit all.
    That, and environmental concerns are less developed in China, despite the smog. The fact that they got to have that level of pollution in the first place shows how little thought they have given to the environment so far.
    A Tesla buyer in China would be younger and more Internet aware than a traditional luxury car buyer. You really need someone who drives their own car. This market probably cannot afford the Model S in significant numbers yet.

    1. ffbj says:

      Yes, I think that is correct. There are number of factors weighing on sales in China and brand recognition, charging availability are two of them. Additionally usually you will only be able to get one car even if you can afford more.
      A subtle factor may be that the Chinese don’t really trust their government, which is pushing electric vehicles. Note the example of the farmer who found a huge gold nugget, and now the government wants it.
      Herd instinct and lack of individualistic thinking is another factor. After being told for years what to think, and seeing the results of at least not outwardly toeing the party line, has led to a meek, suspicious, and fearful population. Trying new things, and taking big risks, so called rugged individualism is not part of their make-up.
      Musk should probably place a foreigner, non Chinese in charge, one who speaks fluent Mandarin, of course, and see how that goes.

  14. Open-Mind says:

    Has China experienced the P85D yet?

    If not, I would expect its availability to boost sales there.

  15. CAB says:

    I read this “memo” and basically…Tesla is a lot more like every other big company every day. Do more with less or risk getting canned…it’s a business reality everywhere you look. The grass isn’t any greener…

    1. sven says:

      It’s been like that at Tesla for a long time, just ask Martin Eberhard.

  16. ffbj says:

    On an anecdotal side note. One of my clients was Chinese, and his story in brief was that he got 3 strikes in the old China, and was sent to a re-education camp for 25 years.
    He was not tortured and said it was like living in a crummy hotel. What were the great sins he committed, you may wonder?
    He was not a member of the Communist party but was dating a female that was, apparently a no-no, at that time. Then when they asked him to spy on his fellow workers, he refused. The last straw was when they, the party, placed a party functionary in charge of his engineering section who had no clue, no training in engineering. He complained about this and was promptly packed off to the re-education camp.
    One day, after 25 years, they came to him and said we made a mistake, and we are releasing you.

  17. ModernMarvelFan says:

    I am sorry to say this that most western executives (Elon included) are too arrogant to understand how China works.

    China is a world that pretty different from the rest of the world. It is a country full of paradox and going through generational changes.

    You can call it “communist” or “socialist” or 1800s version of “industrial revolution” with social and economic changes. It is a mix bags of changes.

    The problem is NOT that Tesla is NOT good enough or too expensive. The problem is that rich and wealthy people only buy Tesla for “image”. But when buying things for image becomes too much hassle, they just forgo the Tesla and buy a BMW, Mercedez, or Bentley instead. We think Tesla is superior to those choices. That is true, but it doesn’t matter since that is NEVER part of the logical decision when those wealthy people are making those purchase decision…

    So many of those so called rich elites live in luxury condos in Beijing and Shanghai. They live in a 2,500 sq luxury condo with maids and drivers and probably have 100 millions in their oversea bank account. But they are NOT going to go through all the hassles to install a high power charger in their cramped underground parking structure.

    The only way that Tesla would succeed in China is by making a deal with the government and somehow got the government owned utilities on board to install Tesla only parking spots everywhere and Tesla only charging stations everywhere. Once that happens, elites would just buy the car just so they can show off.

    One way to think of Chinese rich elites is think how rap stars behave in this country. Those people got rich quickly and still behave like they are from the “hoods”… So, it is same over there…

    1. PVH says:

      This is making lots of sense, thank you for this analysis. For all the achievements of the USA in those last 2 centuries, it cannot be said that making efforts to thoroughly understand foreign cultures was often part of them.

    2. Mr. M says:

      …well analysed. I think that is what most of us are missing. The people don’t care about TCO. They don’t care about faster 0-60 time (they are all fast cars…).

      They want to show off. And installing charging is a hassle if you don’t own the parking spot. To complicated, sorry, bye bye.

    3. Timj says:

      50% Right
      And the rest…
      Come to China, stay one year, then you’ll get the reason

  18. Timj says:

    I’m chinese, living in China.
    My country seems very strange in your replies.
    Too much misunderstanding,too much.

  19. His guys in China won’t sell because they aren’t getting the big commissions that Teslas command there. The entire staff must go.