Tesla CEO Musk tells staff he plans 'thorough reorganization'

By David Shepardson

(Reuters) - Tesla Inc's (O:TSLA) chief executive officer told employees on Monday the company is undergoing a "thorough reorganization," as it contends with production problems, senior staff departures and two crashes last week involving its electric, self-driving cars.

CEO Elon Musk said in an email it was "flattening the management structure to improve communication," combining functions and trimming activities "not vital to the success of our mission" in the reorganization. The company confirmed the note that was disclosed earlier by the Wall Street Journal.

Tesla is at a critical juncture as it tries to fix production headaches that have slowed the rollout of its Model 3 sedan, a mid-market car seen as important to Tesla's success, and as it expands on other fronts.

Tesla shares fell 2.9 percent to $292.37 (£215.6) on Monday.

Senior Tesla executives have departed or cut back work. Waymo, Alphabet Inc's (O:GOOGL) self-driving unit, said on Sunday that Matthew Schwall had joined the company from Tesla, where he was the electric carmaker's main technical contact with U.S. safety investigators.

Last week, Tesla said Doug Field, senior vice president of engineering, was taking time off to recharge.

The company is developing multiple new vehicles, including a semi truck, and registered a new car firm in Shanghai in a likely step toward production in China.

Musk said on a May 2 earnings call that the company was "going to conduct sort of a reorganization restructuring of the company ... this month and make sure we're well set up to achieve that goal."

He added that "the number of sort of third-party contracting companies that we're using has really gotten out of control, so we're going to scrub the barnacles on that front. It's pretty crazy. You've got barnacles on barnacles. So there's going to be a lot of barnacle removal."

Tesla will still rapidly hire critical positions "to support the Model 3 production ramp and future product development," Musk said in the email.

Tesla faces a variety of other issues.

Investors gave a rare rebuke to Musk after he cut off analysts on the earnings call asking about profit potential, sending shares down 5 percent despite promises that production of the Model 3 was on track.

The company changed the terms of its borrowing agreement with banks to allow it to pledge its Fremont, California, auto plant as collateral.

A U.S. traffic safety regulator on May 2 contradicted Tesla's claim that the agency had found that its Autopilot technology significantly reduced crashes.

Autopilot, a form of advanced cruise control, handles some driving tasks and warns those behind the wheel they are always responsible for the vehicle's safe operation, Tesla has said.

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In a Twitter post on Monday, Musk denied a Wall Street Journal report that Tesla had rejected a system that would have tracked driver eye movement when using Autopilot.

"This is false," Musk wrote. "Eyetracking rejected for being ineffective, not for cost. WSJ fails to mention that Tesla is safest car on road, which would make article ridiculous. Approx 4X better than avg," Musk said, without explaining the basis for the figure.

Tesla said in March that its vehicles using Autopilot were four times safer than conventional vehicles based on the number of miles per fatalities. In another Twitter message on Monday, Musk said the "probability of fatality is much lower in a Tesla. We will be reporting updated safety numbers after each quarter."

In the latest of two reported crashes last week that have drawn attention, a Tesla Model S sedan was travelling at 60 miles per hour (97 km per hour) when it smashed into a fire truck stopped at a red light in South Jordan, Utah, about 20 miles south of Salt Lake City on Friday night, according to police.

National Transportation Safety Board spokesman Keith Holloway said on Monday the agency is not investigating the Utah crash.

The Tesla driver suffered a broken ankle and was taken to a hospital while the firefighter was not injured, the police said.

Witnesses said the Tesla sedan did not brake before impact, police said in a statement. It was unknown whether the Autopilot feature in the Model S was engaged at the time, police said.

"Tesla has not yet received any data from the car and thus does not know the facts of what occurred, including whether Autopilot was engaged," the company said in a statement on Monday.