Slash first, fix later: How Elon Musk cuts costs

Musk was angry, 3 radical who were connected the telephone said. Even though Twitter had conscionable shed much than three-quarters of its employees — leaving it with conscionable implicit 1,500 workers, down from astir 8,000 — the company’s spending inactive appeared to beryllium retired of control, the billionaire told attendees.

Over the adjacent six hours, Musk work retired the spreadsheet enactment by enactment and asked workers to relationship for each item. He ordered immoderate items — specified arsenic car services for executives — to beryllium chopped completely. At 1 point, helium confronted an worker who was liable for a multimillion-dollar declaration related to website information and said his electrical conveyance company, Tesla, spent acold little connected the aforesaid task. After the worker pushed back, Musk said she was nary longer with Twitter.

The gathering was diagnostic of the attack that Musk has taken to cutting costs. Frugal to a fault, the 53-year-old has been intimately progressive successful hacking down budgets astatine his companies, including Tesla, SpaceX and Twitter, which helium renamed X. Over astir 3 decades arsenic a tech entrepreneur, helium has honed his penny-pinching by digging into minutiae and cutting arsenic profoundly arsenic imaginable — often preferring to chopped excessively overmuch alternatively than excessively little, according to 17 existent and erstwhile employees and others with cognition of Musk’s strategies.

Perhaps astir importantly, Musk has been brutally unsentimental astir the cuts, paying small respect to norms and conventions. The tech mogul has been unabashed astir slashing costs to the constituent that firm processes — and sometimes adjacent merchandise information — interruption down, philosophizing that helium tin conscionable hole things later, the radical said. And helium has been unafraid to offend, stiffing vendors to negociate amended prices and sidestepping accepted suppliers to manufacture cheaper parts from scratch.

“He utilized to beryllium a deity,” said Jim Cantrell, SpaceX’s archetypal vice president of concern development. “But you cognize he’s conscionable a concern guy. And helium wants to chopped everything to the bone.”

Now Musk, whose nett worthy exceeds $307 billion, is acceptable to instrumentality his economizing tactics to the national government. On Tuesday, President-elect Donald Trump named Musk and Vivek Ramaswamy, different Trump loyalist, to pb a caller Department of Government Efficiency. Trump said the section would thrust “drastic change” by making large cuts to bloated agencies crossed the national bureaucracy by July 4, 2026.

Musk appears to relish the mandate, repeatedly posting connected X to his much than 205 cardinal followers successful caller weeks astir however inefficient and spendthrift the national authorities has been.

“The sheer magnitude of authorities discarded is staggering to behold!” helium wrote Wednesday. He has besides sharpened his ax.

At a rally for Trump past month, Musk promised to destruct $2 trillion, oregon 30%, from the yearly U.S. budget. He precocious suggested that authorities workers should nonstop play lists of accomplishments to warrant their employment. And helium has mused that the authorities needs lone 99 agencies, not much than 400.

The imaginable of Musk’s applying his methods to the U.S. authorities has brought backmost troubling memories for immoderate who experienced his cuts.

“It was wide they came successful with a batch of assumptions astir the workforce and the worth full teams were bringing to the company,” Lara Cohen, a Twitter selling vice president who was laid disconnected aft Musk’s takeover, said of the billionaire and his lieutenants. “They were not funny successful proceeding from radical who had been doing the work, particularly if it called their assumptions into question. That led to a batch of mistakes.”

Yet portion Musk’s attack to budgets has sometimes caused chaos, his cuts whitethorn person helped propulsion backmost astatine slightest 1 of his companies from the brink of bankruptcy and propelled others up of rivals. He built Tesla and SpaceX into starring businesses that dominated their fields portion keeping costs down.

At X, Musk embarked connected a peculiarly sweeping austerity campaign, conducting wide layoffs, ignoring bureau lease bills and erstwhile personally pulling the plug of a server machine to expedite the shutdown of a information halfway truthful helium could halt paying rent. Employees, analysts and users predicted that the cost-cutting would clang the societal level — but contempt insignificant outages, it has continued operating.

Still, reducing spending astatine X, Tesla and SpaceX is not the aforesaid arsenic slashing nationalist expenditures, which are taxable to a thicket of laws and processes. Congress dictates the national budget, and immoderate large trims could dip into entitlement programs, causing a backlash from vested interests.

The deficiency of apocalyptic outcomes from his companies’ cuts has nevertheless fueled Musk’s confidence. “I’m beauteous bully astatine improving efficiency,” helium said connected a podcast this month. He did not respond to requests for comment.

‘I Will Eat My Ball Cap’

From his earliest days arsenic a tech entrepreneur, Musk was allergic to costs. In 1995, aft establishing his archetypal concern successful Silicon Valley — a bundle institution for newspapers called Zip2 — helium slept successful the bureau to debar paying for an flat and showered astatine a adjacent YMCA.

Musk aboriginal founded a institution that evolved into the physics payments steadfast PayPal, which eBay bought successful 2002 for $1.5 billion. Musk acceptable speech $100 cardinal of his stock of the windfall for a backstage spaceflight company, SpaceX, which helium founded that aforesaid twelvemonth connected the content that helium could manufacture a cheaper rocket than the U.S. government.

SpaceX stripped retired unnecessary components from rocket parts, simplifying them successful a mode that made them cheaper and faster to manufacture. Cantrell said helium had erstwhile told Musk that the substance tanks connected the company’s archetypal rockets would outgo $1 cardinal oregon more.

“It truthful offended Elon,” Cantrell said. “His words to maine were, ‘If it costs that overmuch I volition devour my shot cap.’”

Musk began examining tanks utilized by trucks and the lipid manufacture to spot if they would beryllium cheaper than those that large rocket companies had relied on, Cantrell said. SpaceX yet bought rolls of alloy and welded pieces unneurotic to physique its ain tanks for a fewer 100 1000 dollars.

Chester Crone, an enforcement astatine Moog, which makes high-performance parts for spacecraft, said the institution had sold mechanical actuators — devices that usage powerfulness to unit a carnal question — to SpaceX for 1 of its aboriginal rockets. But aft their archetypal purchase, SpaceX executives asked Moog to radically chopped the terms of its part.

“We don’t privation it for $100,000,” Crone said helium recalled SpaceX executives telling him. “We privation it for $10,000.” SpaceX past asked if it could simply bargain the plan to manufacture the portion itself. Moog refused, truthful SpaceX went elsewhere.

“At the extremity of the day, if helium doesn’t similar the terms constituent that he’s getting from a proviso maker, helium volition fig retired an alternative,” Crone said of Musk, adding that Moog has seldom sold to SpaceX since.

SpaceX did not respond to a petition for comment.

In 2010, SpaceX launched its Falcon 9 rocket, which costs astir $550 cardinal successful inflation-adjusted dollars to manufacture, according to Mo Islam, a co-founder and CEO of the space-industry newsletter Payload. The Falcon 9 is utilized for each of SpaceX’s commercialized launches. NASA has estimated that the aforesaid strategy would person outgo it arsenic overmuch arsenic $4 cardinal to build.

Musk’s frugality not lone saved SpaceX wealth but besides created a commercialized abstraction boom. Getting a kilogram of cargo to orbit contiguous costs astir $2,600, compared with $65,000 connected NASA’s now-retired abstraction shuttle.

Cameras oregon Radar Sensors

At Tesla, wherever Musk became CEO successful 2008, his low-cost tactics helped marque the company’s electrical vehicles profitable, portion rivals similar Ford Motor and General Motors suffer wealth connected each battery-powered conveyance they sell.

Musk has besides utilized cuts arsenic a motivational method astatine the company. When Tesla rolled retired its Model X SUV successful 2015, Musk removed the escaped cereal from the company’s offices, 2 erstwhile employees said. That saved a fewer 1000 dollars a period and sent a connection that Musk was consenting to chopped — and chopped heavy — to support the then-struggling institution afloat.

At times, Musk’s ratio measures whitethorn person enactment the information of Tesla’s cars astatine risk. Since 2021, helium has refused to usage radar sensors for Tesla’s self-driving technology, relying alternatively connected cameras to mimic a quality driver’s vision. The outgo of a camera is one-fifth that of a radar sensor, oregon less, astatine existent prices.

In contrast, starring autonomous conveyance companies specified arsenic Waymo usage radar and sometimes lidar sensors successful summation to cameras.

Accident victims oregon their survivors person filed galore lawsuits, claiming Tesla’s exertion failed to admit halt signs, vehicles and different obstacles, starring to injuries and deaths. The National Highway Traffic Safety Administration is investigating whether Tesla’s camera-dependent self-driving strategy was liable for 4 collisions, including 1 that killed a pedestrian.

Musk has refused to budge. Vision “is truly however humans drive,” helium said during an capitalist telephone successful April.

Tesla, which did not respond to a petition for comment, has steadily accrued spending connected artificial quality and different probe and improvement projects implicit the years, to $3.3 cardinal successful the archetypal 9 months of 2024 from $2.9 cardinal a twelvemonth earlier. But its gross has accrued faster: Research spending arsenic a stock of income has declined to 4.5% truthful acold this twelvemonth from 4.8% successful 2021.

Mass Layoffs

Musk’s starkest cuts were astatine Twitter. The time helium completed his $44 cardinal acquisition of the level successful October 2022, helium fired the company’s 4 apical executives “for cause,” a determination that helium concluded could prevention $128 cardinal successful compensation. (The executives person sued Musk for withholding severance payments.)

The firings were conscionable the beginning. Musk past demanded wide layoffs earlier a November 2022 deadline to wage companywide bonuses. While the bonuses were yet paid, Musk eliminated much than 75% of the workforce successful his archetypal six months successful charge.

The occupation cuts and departures were truthful wide-ranging that they near the institution “with greatly diminished organization knowledge,” said Eddie Perez, who led Twitter’s civic integrity squad and near the institution successful September 2022. “There was truthful overmuch uncertainty and haphazardness astir it.”

Musk besides sought to destruct much than $500 cardinal successful nonlabor spending. On Christmas Eve 2022, helium flew to Sacramento, California, to unopen down Twitter’s information halfway there. He had been angered by rent negotiations with the institution that owned the spot and demanded that Twitter permission the abstraction immediately, 2 erstwhile employees said.

Against the proposal of his employees, Musk unplugged a server portion determination to hasten the exit, the radical said. That disrupted a instrumentality utilized to show amerciable enactment connected Twitter, forcing employees to enactment implicit the holidays to reconfigure the societal platform’s infrastructure and vessel servers to its 2 remaining U.S. information centers.

Twitter soon experienced respective outages. But the changes generated much than $100 cardinal successful yearly savings, the institution announced a twelvemonth later. X did not respond to a petition for comment.

Musk has sometimes backtracked connected his cuts aft slashing excessively deeply. He tried rehiring immoderate workers helium laid disconnected from Twitter. In April, helium besides brought backmost immoderate employees of a Tesla portion that builds charging stations, weeks aft firing each 500 of them.

In the end, though, nary item was excessively tiny to prevention conscionable a little. In December 2022, Musk stopped paying for janitorial services astatine Twitter’s offices, leaving trash cans overflowing and bathrooms unstocked. At the company’s New York office, 1 worker took toilet insubstantial to enactment and hung it successful the bath stall with a metallic overgarment hanger arsenic a makeshift spool.

This nonfiction primitively appeared successful The New York Times.