Elon Musk asks Tesla (TSLA) employees to worry more about costs than the delivery wave this quarter
Elon Musk kept his word and asked Tesla employees not to worry so much about delivering as many cars as possible during this delivery wave at the end of the quarter and instead focus on costs.
This is a significant change in what has been Tesla’s strategy for years.
Tesla has been known to have intense end-of-quarter, and this time end-of-year, delivery pressures due to the distribution system, which is very different from other automakers using third-party dealers.
Since Tesla sells directly to customers, the car manufacturer owns the vehicle until it is fully delivered to the buyer and paid for.
As a result, transit times are extremely important to Tesla financially since the carmaker bears the cost of building these cars and does not receive money until customers can actually pick them up.
Therefore, when Tesla has many vehicles in transit at the end of a quarter, the quarter looks bad for them financially.
That̵[ads1]7;s why Tesla is trying to build vehicles for export at the Fremont plant and Gigafactory Shanghai early in the quarter and vehicles for local deliveries later to allow transportation time by the end of the quarter.
However, this strategy results in Tesla’s sales and delivery team having to deal with significant quantities of vehicles to be delivered towards the end of each quarter, called “delivery waves” or “delivery pressure”.
This increases both the costs as Tesla does everything logical to get the cars to the customers and has a negative effect on the delivery experience for the customers who are often in a hurry to take delivery.
Last quarter, we reported that Musk told Tesla employees that “‘this is the craziest month of deliveries Tesla (TSLA) will ever have.”
The CEO indicated that Tesla will aim to reduce these delivery waves in future quarters and even said that Tesla can let more deliveries slide into next year.
We noticed that this remains to be seen since many years ago Musk told something similar to employees, but the pressure from the market to look good on a quarterly basis led to no change taking place.
Now Musk is keeping his word when he sent a new email to Tesla employees late Friday, telling them to prioritize cost-effectiveness in deliveries rather than cramming as many deliveries as possible at the end of the quarter:
“We will still have a fairly large wave of deliveries in the last weeks of December, as we do not yet have high-volume production in either Europe or Texas, which means many cars on boats from China to Europe and on trucks. [and/or] rail from California to the east coast arriving late in the quarter, but this is still the right time to start reducing the size of the wave in favor of a smoother and more efficient delivery rate. “
The CEO asked employees to behave “as if Tesla was not listed and the term ‘end of quarter’ did not exist.”
Although the design may be different, this is a clear message from the CEO to Tesla employees telling them that the delivery wave is not as critical as it once was.
Here is the full email via CNBC:
From: Elon Musk
To all
Subj. Q4 deliveries vs. cost-effectiveness
Date: November 26, 2021 [time stamp redacted]
Per my email several weeks ago, our focus this quarter should be on minimizing cost of deliveries instead of spending heavily on handling fees, overtime and temporary contractors just so the cars arrive in Q4.
What has happened historically is that we sprint like crazy at the end of the quarter to maximize deliveries, but then deliveries fall massively in the first weeks of the next quarter. Seen over a six-month period, we would not actually have delivered any extra cars, but we would have spent a lot of money and burned ourselves out to speed up deliveries in the last two weeks of each quarter.
We will still have a fairly large wave of deliveries in the last weeks of December, as we do not yet have high volume production in either Europe or Texas, which means many cars on boats from China to Europe and on trucks [and/or] rail from California to the east coast arriving late in the quarter, but this is still the time to start reducing the size of the wave in favor of a smoother and more efficient delivery pace.
The right principle is to take the most effective action, as if we were not listed and the term “end of quarter” did not exist.
Thanks,
Elon
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