Tesla Executives Step Away, Adding to Auto Maker's Challenges

Tim Higgins and

Tim Higgins

The Wall Street Journal

Biography
@timkhiggins
tim.higgins@wsj.com

Sam Goldfarb

The Wall Street Journal

Biography
sam.goldfarb@wsj.com

May 13, 2018 7:43 p.m. ET

47 COMMENTS

Tesla Inc. TSLA -1.30% will be without two important executives just as the electric-car maker struggles to boost production of its first mass-market vehicle and faces doubts about its ability to raise cash.

Matthew Schwall, who was the company’s main technical contact with U.S. safety investigators as the Silicon Valley auto maker races to develop driverless-car technology, left the company for rival self-driving car company Waymo LLC. His departure comes as the National Transportation Safety Board has been investigating multiple crashes involving Tesla vehicles.

Mr. Schwall’s exit comes after Tesla said Friday that its engineering chief, Doug Field, was taking a leave of absence to recharge and spend time with his family.

Mr. Field is stepping away from the company for several weeks, according to people familiar with the matter. One person described the absence as a “six-week sabbatical” while Tesla declined to say when he would come back.

“He has not left Tesla,” a company spokesman said.

Mr. Field, a key leader at the auto maker since joining in 2013 from Apple Inc., oversees the engineering of Tesla’s vehicles, and last year he was also given oversight of production to better align those efforts. That changed this spring, when Chief Executive Elon Musk said he retook control of production.

Tesla is at a critical juncture as it tries to produce enough of its mass-market Model 3 cars to generate cash to fund the business and instill confidence in investors that the company can move beyond being a niche-product maker.

Excitement about Tesla’s ability to bring electric vehicles to the masses and then to develop autonomous vehicle technology helped push the company’s stock to record levels last year and give it a market value that rivals that of General Motors Co.

But Tesla has struggled to crank up Model 3 output since it began last July in Fremont, Calif. It has twice delayed a critical goal of producing 5,000 Model 3s a week, more than double the pace the company said it reached at the end of the first quarter. Tesla now says it expects to make that many cars by around the end of the second quarter.

Mr. Musk has said Tesla won’t need to raise more money this year, but the longer it takes Tesla to meet its production targets the “greater the financial risk,” said Efraim Levy, a senior equity analyst at CFRA Research. Tesla shares have fallen roughly 2.2% this year to $301.06.

Tesla finished the first quarter with $2.7 billion in cash on hand, versus $3.4 billion at the end of last year. Analysts surveyed by FactSet predict the company will burn through $1.2 billion in the rest of the year. It will need to pay down a $230 million convertible bond this November if its stock doesn’t reach a conversion price of $560.64, and a $920 million convertible note next March if the stock doesn’t reach $359.87.

No fundraising option is without drawbacks. Issuing new shares would dilute shareholders and likely drive down the share price, potentially rattling creditors and pushing up borrowing costs—a chain that could result in further share declines. And the falling price of Tesla’s unsecured bond means new debt could lead to significant added interest expense.

Tesla also could sell convertible bonds, a hybrid of debt and equity that has been the company’s favored means of raising cash in recent years. But that could prove more challenging because of the unique dynamics of the market. Many investors, such as hedge funds, will buy convertible bonds only if they can also bet against, or short, the issuer’s shares—a strategy known as convertible bond arbitrage.

Normally, that isn’t a problem, as investors can easily short shares in many large companies by borrowing in the stock-loan market and then selling, with the expectation of repurchasing at lower prices later. But Tesla is now the most shorted stock in the U.S. by dollar volume, making it increasingly costly and difficult to borrow its shares, a necessary move for shorting.

“If there isn’t enough stock available, or the rate is so high, the hedge becomes untenable,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, who previously worked on the stock-loan desk at Morgan Stanley .

Neither Mr. Schwall nor Mr. Field could be reached for comment. Waymo confirmed Mr. Schwall has begun working for the Alphabet Inc. unit.

Tesla has long been known as a difficult place to work, given its demanding CEO, Mr. Musk, and key leaders have departed in the past year or so as Tesla prepared to bring out the Model 3.

Tesla Inc. stocks and bonds fell after an unusual earnings call on May 2 threatened investors’ faith at a pivotal time for the company. These are the highlights. Photo: Reuters/Joe Skipper

In early 2017, Jason Wheeler left as chief financial officer after less than two years. He had previously been vice president of finance at Alphabet unit Google, and some Wall Street analysts thought he might be able to instill more conservative targets for the auto maker, which under Mr. Musk’s leadership have been wildly off. For example, Mr. Musk once suggested Tesla would make as many as 200,000 Model 3 sedans in the second half of 2017, when, in fact, it built about 2,700.

Mr. Wheeler was succeeded by Deepak Ahuja, a longtime Musk confidant who spent more than seven years as Tesla financial chief before departing in late 2015.

Then, this past February, Jon McNeill, Tesla’s president of global sales, marketing and delivery and service, left to become chief operating officer at ride-hailing service Lyft Inc. Mr. McNeill had joined Tesla in the fall of 2015 when then-head of sales Jerome Guillen took a leave from the auto maker.

In April, Tesla lost Jim Keller, the head of the company’s driver-assistance system called Autopilot, which can handle speed and steering in certain situations. That business has been hit with several departures, as Mr. Musk has pushed the team to put a self-driving car on the road. The CEO had promised to demonstrate a car capable of driving itself from Los Angeles to New York by the end of last year—a milestone the company failed to meet.

Tesla has also recently lost its corporate treasurer and chief accounting officer.

Mr. Schwall, who was director of field-performance engineering, served as “primary technical contact” at Tesla with safety-regulation agencies including the NTSB and the National Highway Traffic Safety Administration, the regulatory body that oversees the auto industry, according to his LinkedIn biography.

The NTSB last week opened its fourth investigation into a crash involving a Tesla vehicle after a Model S sedan veered off the road in Florida. The agency has said it was initially reviewing the emergency response to the vehicle’s battery fire that occurred after the crash. Tesla has said it hadn’t retrieved the vehicle logs but that it appeared it crashed at a very high speed and that Autopilot wasn’t engaged.

Write to Tim Higgins at Tim.Higgins@WSJ.com and Sam Goldfarb at sam.goldfarb@wsj.com

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