Tesla CEO Threatens Firings After Dismal China Sales: Sources

(Reuters) - Tesla Motors Inc. Chief Executive Elon Musk is prepared to fire overseas executives, people with knowledge of the matter said, after weak Chinese sales of the company's luxury electric cars cast doubt on his ambitious global expansion plans.

Tesla sold about 120 cars in China last month, one of the sources told Reuters, well below the company's aggressive targets. Musk has previously said he expected China sales could rival those in the United States as early as 2015.

Two top China managers left the company in 2014, Tesla said last year. Musk indicated other country managers who are not meeting targets may lose their jobs, the sources said.

The persons, who spoke to Reuters over the past two weeks, were not willing to talk for attribution because of the sensitivity of the matter.

Tesla shares slumped 7 percent on Jan. 13 after Musk said China sales were "unexpectedly weak" during the fourth quarter. "We'll fix the China issue and be in pretty good shape probably in the middle of the year," Musk added at the time.

He was more blunt in an internal email to managers in late January, threatening to fire or demote country managers if they are "not on a clear path to positive long-term cash flow," according to two people who have seen the email.

Reuters did not view the original email, but was provided with a written transcript of several key passages by one of the sources. A second source confirmed the authenticity of the email.

Tesla did not have an immediate comment on Tuesday.

While Tesla sales in many overseas markets from Europe to Asia have not met expectations -- and executives have subsequently been fired or demoted -- results have fallen far short in China, a key market for Musk's expansion strategy.

Musk has said Tesla plans to boost annual production from a projected 50,000 cars this year to 500,000 by 2020, with the United States and China as the company's two largest markets. In January, Musk made an even more bullish projection that production would reach "a few million" cars a year by 2025.

But China sales have persistently lagged expectations, triggering an executive shuffle. The company in mid-December confirmed the departure of China chief Veronica Wu. General Manager Kingston Chang left Tesla last March.

Musk in the internal email said underperforming company managers in overseas markets "will be asked to leave or assume a more junior role. This has already happened in China and will likely happen in some other countries, too."

Tesla began taking orders in China in mid-2013 for its sole product, the Model S sedan, and in January 2014 said the Chinese version of the car would be priced from around $121,000, including duties and shipping costs. In an interview at the time with Bloomberg, Musk said Tesla sales in China might equal those in the United States as early as 2015.

Since then, however, Tesla has encountered several speed bumps in China, including the departures of the two executives and the slower-than-expected ramp-up of its retail network. A year ago, Wu said China was expected to contribute "30 to 35 percent" of Tesla's global sales growth in 2014.

Tesla may outline its planned response to those setbacks as early as Wednesday, when Musk is scheduled to present quarterly earnings to investors.

"China has been a big disappointment and that's bound to impact company goals," a person close to the company said. "So they need to show that they are taking some action to cut costs."

Tesla's Model S is one of the most popular electric cars in the United States, despite a starting price of more than $70,000. Last year, Tesla sold an estimated 18,700 cars in the United States, according to Autodata.

During 2014, the company's stock rose nearly 48 percent. On Tuesday, the shares dipped 0.5 percent to close at $216.29 -- a loss of $9.4 billion in market capitalization since the stock peaked last Sept. 4 at $291.42.

Tesla managers received a pointed message in Musk's internal email.

Executives will answer for their decisions to "retain any personnel not involved in vehicle production," Musk said, citing finance, HR, communications and IT as examples.

"We have no choice in this regard. There is no way that we can afford to subsidize a region of any size in the long term without causing serious harm to the company."