Tesla Inc. plans to cut 7 percent of its work force as the electric automaker looks to trim costs and be consistently profitable while it ramps up production of the Model 3 sedan.
The company didn't identify an actual number of jobs being cut, but in an October tweet, CEO Elon Musk said Tesla's workforce stood at 45,000 people. A 7 percent cut equates to 3,150 jobs.
"Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months," Musk wrote in a Jan. 18 email to employees that was published on the company's blog.
"There isn't any other way," he said.
The company said it would reduce full-time employee headcount by about 7 percent and retain only the most critical temps and contractors. The blog didn't give a total number of jobs being cut.
Tough choices
Earlier this month, Tesla cut U.S. prices on all models to offset lower green tax credits, and fell short on quarterly deliveries of the mass-market Model 3.
Musk said the need for lower-priced versions of the Model 3 will become even greater in July, when the U.S. tax credit again drops in half, adding $1,875 to its price tag, and again at the end of the year when it goes away entirely.
The phase-out of the EV tax break confronts Tesla with the choice of raising prices at the risk of losing customers or slashing costs by thousands of dollars per vehicle, a herculean task for an automaker.
Musk also faces a narrowing window in which Tesla's luxury EVs enjoy a monopoly in a market segment they created and defined. Over the next several years, established automakers plan to spend nearly $300 billion on EVs and batteries.
Chinese startups such as Byton and Nio are pushing ahead with technically advanced EVs, building on China's aggressive support for cleaner cars. Most analysts expect China will be the world's largest EV market.
Musk said on Friday the company would need to deliver at least the mid-range Model 3 version in all markets starting around May, as it needs to reach more customers who can afford the vehicles.
Musk said the company is on target to report a GAAP profit in its fourth quarter, but less than the previous three-month period.
"This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit," Musk said.
More competition
Tesla will see a significant increase in competition for EVs as traditional manufacturers begin to roll out an array of products that will be measured against its pioneering lineup. Shortly after Daimler AG’s EQC electric crossover, Audi last year unveiled the E-Tron. Its parent, Volkswagen Group, plans to introduce more than 50 EVs through 2025 across the group.
"It’s refreshing to see Elon Musk announcing practical, traditional steps to get Tesla ready for what could be the company’s most challenging year yet," Jessica Caldwell, executive director of industry analysis at Edmunds, said in an email statement. "This announcement is a rare moment of concession for Tesla, where the company is officially acknowledging the fact that Model 3 buyers actually do care about the tax credits, and could insinuate that demand for the vehicle is starting to wane."
Tesla shares dropped 13 percent, or $45.05, to close at $302.26 in Friday trading.
Tesla shares are little changed in the past year -- though it gyrated dramatically during 2018 as Musk careened from crisis to crisis: warring with analysts over Tesla’s cash needs; smoking weed in an interview and losing his chairman’s role in an SEC settlement over his tweeted buyout offer that never materialized, all while working furiously to ramp up production of the Model 3.
Tesla’s overarching challenge is making cars, batteries and solar products cost-competitive with fossil fuels, Musk said Friday in the blog post.
“While we have made great progress, our products are still too expensive for most people,” Musk wrote in the Friday email. “Sorry for all these numbers, but I want to make sure that you know all the facts and figures and understand that the road ahead is very difficult.”
Incumbent carmakers are also struggling with the high cost of making electric cars. On top of record investment in new electric-car lineups, high battery costs are crimping margins and buyers worried about charging and driving range largely remain on the fence.
