SINGAPORE (June 18): Elon Musk has finally been forced to rethink his vaulting ambitions for Tesla. The news on June 12 that Musk will dismiss more than 3,000 employees, or about 9% of the company’s workforce, underscored what many on Wall Street have been saying for months: Tesla has reached a pivotal moment. After misjudging how quickly the carmaker would be able to mass-manufacture an electric vehicle for the first time, the CEO is pumping the brakes from years of hiring at breakneck speed.

The biggest job cut in Tesla’s 15-year history underscores the pressure Musk is under to stop burning through money — and start making some. So far, the company has cumulatively lost about US$5.4 billion ($7.2 billion), and even most optimists do not believe the red ink will end there. The carmaker may lose another US$1.3 billion over the next four quarters, according to analyst estimates compiled by Bloomberg. The announcement crystallised a restructuring Musk first alluded to when he tore into analysts who questioned Tesla’s financial straits early last month. While the CEO has steadfastly ruled out the need to raise more money this year, the company has about US$1.2 billion in convertible bonds maturing through early 2019. Those obligations, combined with operating costs, may necessitate a more than US$2 billion injection this year, Moody’s Investors Service said in March when it downgraded Tesla’s credit rating.

“We still have reservations on Tesla shares, given production challenges, competitive threats intensifying as well as balance sheet obligations with debt quickly coming due,” Jeff Osborne, an analyst at Cowen & Co, writes in an email. The job cuts reflect Musk’s “sudden, new-found commitment to hitting profitability”, he says. The across-the-board cutbacks, which almost entirely involve salaried workers at Tesla’s California headquarters and beyond, are an admission that Musk’s ambition has at times exceeded the financial realities of building a car company from scratch.

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