Tesla announces production delay

October 15, 2008 5:32:17 PM PDT
Tesla Motors has hit a speed bump on its way to producing an electric sedan in San Jose.

Just one month after the announcement of the $250 million dollar deal in San Jose, comes another announcement from board chairman and CEO Elon Musk ? there will be at least a six month delay in production of the Model S because of the world financial crisis.

"They, like others, are being affected by the credit crunch," San Jose Mayor Chuck Reed said. "It may delay their opening a while, but we're going to pursue the project and continue to move ahead and we're pleased about that."

Musk has taken the CEO title from Zeev Drori, making him the fourth Tesla CEO in one year.

Wednesday, Musk wrote on his blog that Tesla's goal is to be profitable in the next six to nine months.

But before that happens, the company is cutting back. Besides the production delay of the Model S sedan, the company is making modest layoffs and closing a Detroit-area office that houses 30 of the company's 250 employees.

Although Tesla is not releasing specific layoff numbers, a source inside the company told ABC7 very few of the layoffs will be in the Bay Area.

"The fact that they're laying some people off, I think in the current environment is not hugely surprising," Eric Savitz of Barron's Tech Trader Daily said.

Tesla's electric power train sales to other car companies is profitable, but Tesla wants to make more money off its signature car, the six-figure roadster; something that might be difficult during hard economic times.

"So the number of people that can buy $109,000 cars is not that large, even in the Valley," Savitz said. "And the number of people who are willing to spend that amount of money on a car is going to shrink."

Even if Tesla does not reach its goal of being profitable in the coming months, Musk says that he will personally ensure that the company has sufficient capital to get there.


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