What Tesla's Restructuring Means for Cleantech

18 Comments

Tesla chairman and investor Elon Musk explained in a blog post this afternoon that, in an attempt to become cash-flow positive within 6 to 9 months, he has taken over as CEO of the electric vehicle startup and will soon be conducting layoffs. While the moves are hardly unusual, they have particular significance for the cleantech industry in Silicon Valley.

Basically, the message is this: The green party is over, or at least suspended. Companies creating carbon-reducing technologies that aren’t able to bring in revenues, or keep costs down, over the next 6 months look like they are going to have more trouble than in the past raising needed funds. Tesla seemed to spend somewhat freely over the past year as the company wanted to ensure it had the best designed electric vehicle, and was fixing its transmission issues. The CEO before Ze’ev Drori, Martin Eberhard, reportedly was partly ousted for letting finances and cost of the car get out of hand.

In the process of that development, Tesla was turning into the poster child for how a Silicon Valley startup can disrupt an established industry in the green space. But disruption takes a lot of money. And now is the not the time to be spending large amounts. Companies will have to start acting very conservative – if your blue-sky, capital intensive biofuel, solar, or battery company is burning through cash trying to move into production, it’s time to rethink this strategy for the time being and wait out the downturn.

Last quarter, cleantech startups received a record $2.6 billion in venture investment. That amount of funding could look eye-opening by the end of next quarter – most venture capitalists I’ve talked to are now moving cautiously, trying to find ways to stretch their dollars. For while this economic malaise could blow over in a few months, we could also be looking at just the tip of the iceberg. For the time being, the cleantech industry needs to sleep one off after a some extensive partying.

18 Comments

Jim

Tesla (meaning Eberhard) should have designed a small IC engine into the car for range extension at least. But he and the other designers were obsessed with the aesthetics and purity of an all-electric design, rather than the practical reality of battery technology, and its current limitations.

It’s hard to see how Whitestar or whatever its called is not going to be trumped by the Chevy Volt. So without a more mainstream offering to get large sales volume, how are they going to make any money?

I think Mr. Musk is finding out that the difference between building a low-cost launch platform (rocket) for small satellites and building a commercial automobile is that building the rocket is much easier! And cheaper!

Alex Haislip

You would think he’d realized the money for expansion stage financing had disappeared when the banks started burning. Did he really have to wait for Sequoia to pronounce the sky was falling before he realized that the money taps had been turned off?

Katie Fehrenbacher

I’m not sure if it was “the right thing to do” as I don’t know the extent of Musk’s plans to meet that goal. But it’s always wise to be as fiscally conservative as possible in tough times. I think the move is more about accountability, which I applaud. Musk is making himself personally responsible for the success of Tesla. Not like he wasn’t before with his $55M investment, but now he’s stepping in on day to day operations and is even more than before the face of the company. So now it’s really up to him to deliver. Let’s see if he meets his goals over the next 6 months.

Alex Haislip

Was it the right thing to do? Was Musk being too heavy handed or is there really going to be a great green cash flow shortage? All those VC funds got to put their money somewhere.

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