Bloomberg Releases Full Text From Elon Musk’s Rally Email To Employees

SEP 7 2016 BY ERIC LOVEDAY 28

Tesla

Tesla

Tesla CEO Elon Musk

Tesla CEO Elon Musk

Without further ado, here’s the full text (via Bloomberg) of the Q3 rally email that Elon Musk recently sent out to Tesla employees. The email is dated August 29 and the subject line if Third Quarter Rally!

I thought it was important to write you a note directly to let you know how critical this quarter is. The third quarter will be our last chance to show investors that Tesla can be at least slightly positive cash flow and profitable before the Model 3 reaches full production. Once we get to Q4, Model 3 capital expenditures force us into a negative position until Model 3 reaches full production. That won’t be until late next year.

We are on the razor’s edge of achieving a good Q3, but it requires building and delivering every car we possibly can, while simultaneously trimming any cost that isn’t critical, at least for the next 4.5 weeks. Right now, we are tracking to be a few percentage points negative on cash flow and GAAP profitability, but this is a small number, so I’m confident that we can rally hard and push the results into positive territory. It would be awesome to throw a pie in the face of all the naysayers on Wall Street who keep insisting that Tesla will always be a money-loser!

Even more important, we will need to raise additional cash in Q4 to complete the Model 3 vehicle factory and the Gigafactory. The simple reality of it is that we will be in a far better position to convince potential investors to bet on us if the headline is not “Tesla Loses Money Again”, but rather “Tesla Defies All Expectations and Achieves Profitability”. That would be amazing!

Thanks for all your effort. Looking forward to celebrating with you,

Elon

Source: Bloomberg

Categories: Tesla

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28 Comments on "Bloomberg Releases Full Text From Elon Musk’s Rally Email To Employees"

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So is the fact the CEO of a multi-billion dollar, publicly traded company is sending a “We can do it, guys!” email to motivate employees really newsworthy?

Seems like much ado about nothing IMO.

The part about having to raise capital (i.e. another stock PO) is newsworthy, though.

but the shorts were saying that the email said to cut corners on the cars!

If anything, I read it as saying they should push off any non-critical expenditures for 4.5 weeks. Say Tesla is all set to buy a certain robot for Model III production. If they buy it in October, it counts as a Q4 cost. They still buy the equipment, and they still spend just as much money. But they move it around so that Q3 looks better.

In the end, it’s just about shuffling costs and revenues to make Tesla look good to potential investors. Nothing wrong with that per se. But frankly, since this letter got out, it probably won’t have as strong of an effect. If Tesla is profitable in Q3, I certainly will be less impressed, having read this letter.

There is only so much that can be done to shift expenses from one quarter to the next quarter. Tesla and just about every single company is on an accrual basis of accounting as opposed to a cash basis of accounting. That means that any recurring monthly/quarterly expenses (ie electric bill and property tax bill) get booked/accrued as an expense each month/quarter regardless of whether they’re actually paid in that month. So the only expenses that could get shifted to the next quarter are nonrecurring expenses. With regards to delaying an equipment purchase, that would affect cash flow and the balance sheet, adding to Property, Plant, and Equipment assets and decreasing cash or increasing accounts payable in the liabilities section of the balance sheet. There would be no direct cost or expense deducted on the income statement for an equipment purchase, but a depreciation expense might or might not be delayed depending on whether the asset would be placed in service in the same month as purchased and whether the depreciable asset uses a half-year, mid-quarter, or mid-month depreciation convention. Likewise, any finance charges or interest expense would be decreased by delaying a purchase to the next quarter. Delayed purchases… Read more »

On top of supply line shifts, there are also shifts that can be done by Human Resources to cut wage costs. Even something as simple as encouraging non-critical employees to take accrued vacation time off in this quarter can lower the numbers (accrued vacation hours are booked against the bottom line). Delaying bonuses and raises for 4.5 weeks, holding off on filling non-critical job vacancies, etc can cut costs.

All without impacting build quality.

There are so many ways to decrease costs in a quarter that it isn’t even funny. All of which is standard and customary in the business world.

I see your point, but almost anything that happens at Tesla is news. I think Musk is merely asking the best of all of his employees, with that certain coppery flavor of desperation. Maybe he could ask the government for help:
Brother can you spare $10B.

https://www.youtube.com/watch?v=p3KoJj4dz2I

It really takes the shine off any positive results Q3 might give, and considering the tremendous push to Model 3 and Gigafactory production that Tesla is supposed to be making, it seems counterproductive to ask staff to defer costs for a month.

It’s got to be disappointing that the stock has been sliding, but that’s a self-created problem caused by the proposed SCTY acquisition.

I agree with Elon. There are people who have continually said that Tesla will never make a profit, even on this very website. Now most of us know that Tesla is growing rapidly and spending a lot of money on supercharger stations and factories. And so if they can prove that they ARE profitable minus that expansion, that goes a long way to showing the long-term vision for the company.

Tesla has had profitable quarters before. The last was three years ago, right before another huge stock offering.

Check Tesla income here:
https://ycharts.com/companies/TSLA/net_income_ttm
They can’t prove what doesn’t exist. It is negative and going downhill since 2014. No, it is not “because of investing”, investing capital is extra AFTER these losses.

What they can certainly make, is to show small non-GAAP (means phony) profit for one quarter, going into double loss next quarter. True GAAP profit is beyond reach. You really need to show something significant to investors when you are going from annual share sales to bi-annual, increasing amount raised, and raising money for the same things again after spending previously raised money on some family bailout.

They would have profits in more quarters but for capital expenditures for the Model S and Model X, and other expenditures.

What part of this do you not understand, where Elon explains how their ability to show profits will turn into a negative position due to capital expenditures:

“Once we get to Q4
Model 3 capital expenditures
force us into a negative position
until Model 3 reaches full production”

How dumb it can be? You don’t understand what the word “profit” mean and repeat the same nonsense again instead of looking up meaning of the term.

E.g. you spend $10 bln. on capital expenditures, $1 bln on raw materials or whatever, and sell products for $0.5 bln. Your profit/loss is 0.5 bln. – 1 bln = -0.5 bln. Capital expenditures do not even come into this math sentence. Capital expenditures would affect profit in later quarters in form of depreciation and interest (if you pay interest for capital) payments over many years, but it is just constant cost of doing business, not some sudden reduction of profit at the time capital was invested.

What part of Musk talking about “GAAP profitability” do you not understand?

Did you even bother reading the story before starting yet more of your ignorant bashing? Or do you not know what “GAAP profitability” means? How much slower do you need to read before you understand?

Here, try reading it this slowly:

“G
A
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P

p
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f
i
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a
b
i
l
i
t
y”

Zman, would you agree that if you run a very capital intensive business and have large capital expenses (like Tesla has), that the depreciation and interest expense from the Capex would dramatically impact your profitability in all subsequent quarters?

zzzzzzzzzz continued his FUD campaign:

“Check Tesla income… They can’t prove what doesn’t exist. It is negative and going downhill since 2014.”

How many years have you been repeating that lie?

If Tesla wasn’t making a sizable profit on every car it sells, it would have gone out of business years ago.

It’s simply a ra ra letter to get the employees excited. What company hasn’t done that to give motivation and help drive them to the finish line because they can see it? Good news should be coming for them, it’s due.

Andrew Carnegie used to hold contests between his steel plants to see who could make the most steel.

The real news in this email is that Elon is confirming that the “Model 3 reaches full production…late next year[2017]”.

And the other news is that they are just a few percentage points from a profitable quarter, and they have time to turn this into a profitable quarter.

Lets see. Model 3 currently on schedule for late 2017, and TSLA is within reach of turning a profitable quarter. To sane people, that is good news.

To haters, they think that is bad news.

To all the haters who claim that Tesla investing in their own future somehow magically does not cut into TSLA profits, read this sentence:

“Once we get to Q4, Model 3 capital expenditures force us into a negative position until Model 3 reaches full production”

Now read it again, slower this time so it might sink in:

“Once we get to Q4
Model 3 capital expenditures
force us into a negative position
until Model 3 reaches full production”

This should be obvious. Tesla’s continued investment into the future, pushes TSLA stocks negative. All of you trolls who are in deep denial of this fact, go back and read my post again until it sinks in.

“Investing in their own future somehow magically does not cut into TSLA profits”
You should really do some reading to understand what the word “profit” means. More precisely, loss, not profit. Investing isn’t accounted when calculating profit/loss. Only depreciation on investment does. Investing will certainly cut into cash flow, but it hopeless and sustained only by regular share sales anyway, so who cares really.

What part of this do you NOT understand?

“Once we get to Q4
Model 3 capital expenditures
force us into a negative position
until Model 3 reaches full production”

The capital expenditures for depreciable assets like the Gigafactory don’t get deducted as expenses on the income statement, and instead go on the balance sheet as property, plant, & equipment (PPE) assets. Thus in the year incurred these capital expenditures don’t affect profit/loss, but do affect cash flow. Once these PPE assets are placed in service, then a depreciation expense is taken every year until fully depreciated, which affects profit/loss on the income statement.

So you know more about Tesla that the CEO of Tesla? Do you also know more about ISIS than the Generals?

What part of this do you not understand? Here, read it slower, maybe it will sink in:

“Once we get to Q4

Model 3 capital expenditures

force us into a negative position

until Model 3 reaches full production”

“negative position” – this is typical Musk double talk. You can put whatever meaning you want into this word. Some true believers who don’t have a clue about simple accounting and adding/subtracting numbers can assume profit, and may continue to hang on their loosing investment. Musk can always say that he didn’t meant profit by “position” but cash balance, and of course it wasn’t capital expenditures that created losses.

Damn, you are bad at reading.

Musk clearly includes “GAAP profitability”:

“we are tracking to be a few percentage points negative on cash flow and GAAP profitability”

What part of GAAP profitability isn’t clear to you?

Zman, read what Sven wrote above:

“a depreciation expense is taken every year until fully depreciated, which affects profit/loss on the income statement.”

Thus, with very large Capex, the income statement (i.e. Profit) is impacted in subsequent quarters. Tesla as a business is ramping up, and must spend huge amounts of capital at the beginning of the ramp. This is nothing new in the business world. Years from now, after Model 3 is in full production, they will no longer be ramping up with Capex and will have much higher levels of income as a result of the current capital outlays. That is when they will become profitable, and hopefully profitable to the point that they can save for future capital outlays.

Nix said:

“Tesla’s continued investment into the future, pushes TSLA stocks negative. All of you trolls who are in deep denial of this fact, go back and read my post again until it sinks in.”

Nix, you’re beating your head against a brick wall. It’s not that sven and zzzzzzzzzzz don’t understand it, it’s that admitting the truth would be completely contrary to their agenda of serial Tesla bashing.

Serial Tesla bashers are too well informed to believe their own FUD. The fraudulent B.S. they shovel out is just for those who they see as “suckers”.

Everyone tryin to ruin elon now?