Tesla runs low on cash, plans job cuts

UPDATED: 10/15/08 9:36 pm EDT

Tesla Motors Inc. has hit a big pothole on the road to full production of its high-performance electric roadster. It is running low on cash.

With production at a crawl -- fewer than 50 of the $109,000 cars have been delivered -- Tesla is laying off a number of employees, according to the San Jose Mercury News.

Tesla chief investor Elon Musk is taking over as CEO. He replaces Ze’ev Drori, who will become vice chairman, the newspaper reported.

Several Internet sources said today that Tesla was planning to lay off half of its 200 workers, but the company refused to say how many would be let go.

In a blog posting on Tesla’s Web site today, Musk wrote: “Our goal as a company is to be cash-flow positive within six to nine months. To do so, we must continue to ramp up our production rate, improve Roadster contribution margin and reduce operating expenses. At the same time, we must maintain high production quality and excellent customer service.”

Musk also said Tesla would delay its next model and close its suburban Detroit operations.

Tesla has raised more than $100 million from various investors. Musk, who also founded SpaceX aimed at launching payloads and people into space, invested in Tesla in 2004.

In September, Tesla said it was building a $250 million Silicon Valley plant to produce a new electric sedan code-named Whitestar it expects to unveil next year. Production of the sports sedan Model S was scheduled originally for 2010.

Tesla's then-CEO Drori in an interview said he expected manufacturing of the Model S sedan aimed at the luxury car market to hit a rate of over 15,000 a year by end 2011.

Drori also said then that Tesla was a few months from obtaining up to $100 million in private equity financing.

The U.S. Department of Energy has also approved $150 million in loan guarantees to Tesla, the company said.

Musk said today that Tesla would slow development work on the electric sedan until it gets the U.S. government financing.

"The net result will be a delay in the start of production of the Model S of roughly six months to mid-2011," Musk said.

Tesla unveiled the Roadster prototype in 2006. The car has been billed as the world's first all-electric sports car, able to accelerate from zero to 60 miles per hour in under 4 seconds, faster than a Ferrari.

Production began on the Roadster in March after a number of delays. Tesla had delivered 27 of the cars at the start of September and plans to have 300 built by the end of 2008.

The first cars also were delivered with what Tesla has described as an "interim transmission design" and buyers were allowed free upgrades to a new transmission.

Reuters contributed to this story

You can reach Richard Truett at rtruett@crain.com

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