Something is seriously wrong at Tesla Inc. (TSLA, Financial). Despite placing second in CNBC’s latest list of “The 10 Most Attractive Employers for Engineering Students,” the electric vehicle company cannot seem to hold onto experienced talent, especially in its finance department.
Without top-tier talent, Tesla cannot hope to survive. The company is still reliant on external funding for support. The loss of most of its key finance employees puts Tesla's future at risk.
The talent exodus
2018 was a brutal year for Tesla. The rollout of its Model 3 sedan was bogged down by a litany of manufacturing and logistics problems. All told, more than 100 executives departed the company in 2018.
Tesla has found it difficult to compete with deep-pocketed firms that can offer top finance talent both more compensation and better work-life balance. With Tesla’s share price battered after a turbulent 2018, and still weighed down by uncertainty about the company’s financial viability, many executives have found their stock options underwater. That has only served to hasten the departure of many employees.
In a tweet on March 25, Musk tried to downplay the importance of these numerous departures:
“Ford has 4 CEOs in 5 years & nobody blinks, but Tesla loses 1 intern & it’s front page news. I tell ya (shakes fist at sky).”
Musk’s attempt to make light of the situation did little to convince serious observers. The people leaving Tesla are not interns; they are crucial talent that the company cannot afford to lose. In its 2018 proxy filing, Tesla listed four executive officers:
- Elon Musk, CEO
- Deepak Ahuja, CFO
- JB Straubel, CTO
- Doug Field, SVP of Engineering
As of Tesla’s second-quarter earnings call in July, Musk is the only one left.
A hollowed-out finance team
Tesla has struggled to survive without constant injections of external capital. After posting positive earnings in the second half of 2018, the company quickly returned to steep losses.
The only source of stability and significant industry experience was Ahuja, a financial professional who knew every trick in the book. Yet, by the time he retired in January 2019, Tesla’s finance department was already a ghost town. In March 2018, Tesla lost its chief accounting officer to Enphase Energy, as well as its corporate treasurer and vice president of finance. Tesla’s next chief accounting officer, Dave Morton, bailed in September 2018, after spending less than a month in the job. Justin McAnear, vice president of worldwide finance and operations, left a month later to join a biotech startup.
Tesla’s finance department has only deteriorated in the months since. In March, the company lost both its global treasury director and its vice president of worldwide financial planning and analysis. Last month, Tesla’s regional treasurer for the Americas also quit.
Musk has tapped Zachary Kirkhorn, a 34-year-old with virtually no accounting experience, to replace Ahuja as CFO. That is a risky decision, given the well-known perils of Tesla’s finances.
A matter of trust
With billions of dollars in liabilities in the form of debt instruments and purchasing obligations, Tesla has to walk a financial tightrope. With more losses anticipated in the second half of this year, a rapidly depleting cash balance will only add to the pressure. Yet, it seems that Tesla is willing to leave its fate in the hands of a dwindling team.
A key problem facing Tesla now is trust. The company managed to raise $2.7 billion in May, but on less favorable terms than in raises past. With more losses on the horizon, further raises will be necessary. Yet, without a credible finance team in place, investors will not be easy to convince. For example, Thomas Farley, the former president of the New York Stock Exchange, offered this withering opinion during an Aug. 7 appearance on CNBC’s SquawkBox:
“How do you even triage the false and misleading claims that come out of Tesla to decide which ones to take issue with? The embellishment from that company, it just drives me nuts. Because, if you’re the investor at home, how do you know what to believe and what not to believe ... I rely on a CEO and a company to put out only accurate statements ...The turnover they’ve had in their company, and in the management team, and in the financial and accounting ranks, it certainly gives you more concern than you would for a similarly situated company with more continuity of their finance and accounting staff."
With its finance team in shambles, it will only get harder for Tesla to find financial professionals willing to wade into the situation.
Verdict
Tesla investors should study its finance department. These are the people with the most intimate, up-to-date knowledge of the company’s finances. And they are running for the exits. Anyone with a stake in Tesla would be wise to do likewise.
Disclosure: Author is short Tesla.
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