- This year presented an opportunity for Tesla to build on last year’s positive developments and move away from the chaos that characterised 2018.
- But so far, little has changed in 2019.
- Even celebratory announcements, like the introduction of the $US35,000 version of the Model 3 sedan and the unveiling of the Model Y SUV, have been accompanied by concerns about their implications.
If the first three months of 2019 are any indication, Tesla is set for another eventful, turbulent year.
In 2018, the electric-car maker achieved major successes – impressive Model 3 sales, its first consecutive profitable quarters – that were tempered by a number of challenges and controversies, including a Securities and Exchange Commission (SEC) lawsuit against CEO Elon Musk, overwhelmed service centres, and concerns about workplace safety.
This year presented an opportunity for Tesla to build on last year’s positive developments and move away from the chaos that characterised 2018. But so far, little has changed in 2019. Even celebratory announcements, like the introduction of the $US35,000 version of the Model 3 sedan and the unveiling of the Model Y SUV, have been accompanied by concerns about their implications.
Add to that multiple rounds of layoffs, more trouble with the SEC, and a lost Consumer Reports recommendation, and Tesla has its plate full as it heads into the second quarter.
These are the biggest challenges Tesla has faced so far in 2019.
Tesla had expanded its workforce by 30% in 2018 as it ramped up production of the Model 3, Musk said in an email to employees. He suggested the January layoffs were necessary for Tesla to become consistently profitable while introducing lower-priced vehicles.
But Musk had framed the 2018 layoffs as a decision Tesla would not have to repeat.
“We are making this hard decision now so that we never have to do this again,” he told employees at the time.
Tesla is known for its high rate of turnover among executive and senior-level employees, and this year has been no different.
The company’s CFO, vice president of global recruiting, and general counsel have departed this year.
A lost Consumer Reports recommendation
Consumer Reports retracted its recommendation of the Model 3 in February.
The vehicle lost its recommendation due to feedback from Consumer Reports’ annual reliability survey. Consumer Reports subscribers cited problems with the Model 3’s door handles, loose interior trim and moulding, paint defects, and cracked windows.
A Tesla representative told Business Insider that it has fixed “the vast majority” of the Model 3 issues cited by Consumer Reports subscribers.
The Model 3 also topped Consumer Reports’ list of the most satisfying cars, which is based on survey data from vehicle owners. Out of a possible 100 points, the Model 3 received 99 points for its driving experience, 84 points for comfort, and 67 points for value. Ninety-two per cent of respondents said they would buy the Model 3 again.
The SEC accuses Musk of violating their settlement
The SEC accused Musk of violating their 2018 settlement when he tweeted a projection in February about Tesla’s 2019 vehicle production that exceeded what Tesla had said in its most recent earnings letter.
Musk corrected the tweet, but the SEC said in a court filing that Musk had violated the terms of his settlement with the agency by not seeking or receiving approval from Tesla before publishing his tweet about vehicle production. The agency asked a judge to hold Musk in contempt of the federal court that approved the settlement.
In 2018, SEC sued Musk, alleging that he had made “false and misleading statements” about the possibility of taking Tesla private. Musk and the agency reached a settlement under which Musk didn’t admit or deny the allegations in the agency’s lawsuit but stepped down as the chairman of Tesla’s board of directors for three years and paid a $US20 million fine. The settlement also required Tesla to monitor Musk’s communications, including on platforms such as Twitter.
Store closures and more layoffs
Tesla said in February that it would close many of its stores and convert remaining stores into galleries and information centres as it shifted to an online-only sales model. The move would lead to layoffs, Musk said during a conference call that followed the announcement.
CNBC reported that Tesla laid off 8% of its employees between February 28 and March 7. A Tesla representative told Business Insider the figure reported by CNBC was incorrect, but it did not specify the size of the reduction.
Tesla partially reversed the store closures in March,saying it would “keep significantly more stores open than previously announced.”
A controversial conference call
After announcing the arrival of the long-awaited $US35,000 Model 3, Tesla held a conference call with reporters during which Musk changed a prediction about Tesla’s profitability in the first quarter of this year, saying he no longer believed Tesla would make a profit.
The automaker did not disclose Musk’s updated prediction to the public until a March 1 regulatory filing.
Tesla shareholder Galileo Russell tweeted at Musk, saying he was frustrated by Tesla’s failure to allow shareholders to listen to the call or read a transcript of it.
Tesla later made a recording of the call available on its website.
Investigations into deadly crashes
The National Highway Traffic Safety Administration and National Transportation Safety Board are investigating two fatal crashes in 2019 involving Tesla vehicles.
The first occurred after a driver lost control of his Model S sedan, which caught fire after crashing into multiple trees. Bystanders were reportedly unable to remove the driver from the vehicle because its door handles would not extend.
The second occurred after a Model 3 hit a tractor-trailer that removed the Model 3’s roof and killed the driver.
Model 3 sales temporarily blocked in China
China temporarily blocked the sale of Model 3s in March due to “various irregularities” in vehicles meant for Chinese customers, including the absence of labels on brake fluid tanks and incorrect labels about motor capacity.
A Tesla representative said it fixed the printer error that caused the label issues.
China has since lifted the Model 3 sales ban, Bloomberg reports.
Tesla’s reputation takes a hit
Facebook was the only other company to experience a larger decline than Tesla in the 2019 poll.
Additional cost-cutting measures
Tesla’s cost-cutting efforts have affected employee work schedules and the supply of some small parts used to make vehicles, CNBC reported in March.
CNBC described three cost-reduction measures that Tesla had not made public:
- Asking employees to work remotely and keep travel to a minimum.
- Telling hourly employees at the Gigafactory – the factory in Sparks, Nevada, where Tesla makes batteries and drivetrains – to leave in the middle of their shifts and asking them to take paid or unpaid time off. (CNBC notes that some shifts have been canceled when snow has closed a highway used to transport supplies to and from the Gigafactory.)
- Reducing the number of some small parts, like rivets and fasteners, available at Tesla’s vehicle-assembly plant in Fremont, California.
Uncertainty over Model Y production
Two employees of Tesla vendors told CNBC that Tesla contacted their companies about assisting with Model Y production only after a March 3 tweet from Musk announcing the date of the Model Y unveiling.
Tesla declined Business Insider’s request for comment at the time, but CNBC says the automaker directed it toward the carmaker’s fourth-quarter earnings letter from January, in which it said Model Y production would most likely occur at the Gigafactory.
Revised compensation for salespeople
Business Insider reported in March that in late 2018 Tesla made significant changes to the incentive plan for the salespeople in its retail stores by basing bonus eligibility for individual salespeople on their team’s performance. Bonuses were previously earned based only on individual performance.
“If the store didn’t hit its minimal goal, let’s say 70% of goal, you would get nothing,” one salesperson said.
Business Insider also reported in March that Tesla salespeople would not earn commissions for vehicles that could not be delivered by the end of the quarter, such as the $US35,000 version of the Model 3.
Tesla has cut the prices of its vehicles multiple times this year, but followed its latest round of cuts with price increases for all vehicles aside from the $US35,000 entry-level Model 3 and the Model Y.
Concerns about demand
Price cuts and the unveiling of the Model Y over a year before it’s scheduled to go into production have raised concerns about the demand for Tesla’s current vehicles.
While total US auto sales also fell at the beginning of this year, the drop in Model 3 sales led Vertical Group analyst and Tesla bear Gordon Johnson to say Tesla was in “demand hell.”
After the Model Y’s March 14 unveiling, some Wall Street analysts said the Model Y could cut into demand for the Model 3.
“Likely to cannibalise the Model 3, in our opinion,” Morgan Stanley wrote in a note to investors after the Model Y reveal.
Another SEC whistleblower tip
Sean Gouthro, a former employee in Tesla’s security division, filed a whistleblower tip with the SEC in January that corroborates a tip filed in August from Karl Hansen, a former internal security employee at Tesla, the law firm representing the employees said in a statement.
Whistleblowing tips can lead to fines and sanctions against companies found guilty of violating securities law.
A Tesla representative denied Gouthro’s and Hansen’s claims.
Gouthro is the third former Tesla employee to announce the filing of a whistleblower tip with the SEC in the past year.The Washington Post reported in July that Martin Tripp, a former technician at the Gigafactory, filed a tip – containing claims he had previously told Business Insider – that alleged Tesla used batteries with puncture holes in vehicles meant for customers. Tesla has denied the claim.
Asking for help with deliveries
Business Insider reported in March that Tesla senior vice president Sanjay Shah sent an email to employees seeking volunteers to help with vehicle deliveries.
“We need your help to make more progress in volunteer sign ups,” Shah said in the email. “We have to deliver 30,000 more cars in next 15 days.”
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