Category: Automotive

Bobby Yip | Reuters
Tesla Chief Executive Elon Musk stands on the podium as he attends a forum on startups in Hong Kong, China.

Tesla is cutting its full-time staff headcount by approximately 7 percent, as it ramps up production of its Model 3 sedans, CEO Elon Musk said Friday.

The announcement come on the back of various cost-cutting measures the company has made of late, as it looks to reduce the price of its products and boost margins.

Tesla shares fell almost 8 percent in premarket trade following the news.

In an email to employees, Musk notes that the company faces a “very difficult” road ahead in its long-term goal to sell affordable renewable energy products at scale, noting the company is younger than other players in the industry.

“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 said in the company update.

“Attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity, but succeeding in our mission is essential to ensure that the future is good, so we must do everything we can to advance the cause,” he added.

You can read the full text of Musk's note to employees here.

The exact number of employees that will be laid off as a result has not been disclosed, however Musk last revealed that Tesla had a staff count of 45,000 in an October tweet. If still true today, that would mean 3,150 layoffs.

Earlier this week, the company discontinued the cheapest versions of its Model S sedans and Model X SUVs. And Musk said on Thursday that the firm would also ditch its customer referral program, which rewarded perks likes six months of free charging, as it was “adding too much cost to the cars.”

Musk on Friday said that Tesla faces “an extremely difficult challenge” in making its electric vehicles and solar products a competitive alternative to traditional vehicles and energy products that rely on fossil fuels.

“Starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles,” Musk said.

“Moreover, we need to continue making progress towards lower priced variants of Model 3.”

The cheapest version of Tesla's Model 3 currently costs $44,000, and the company is looking to release a $35,000 version. Musk said in a CBS interview in December that the company was “not that far from being able to produce the $35,000 car,” adding that it would “probably be ready in about five or six months.”

In its last quarterly financial statement, the firm posted its first profit in two years, reporting a net profit of $311.5 million and $881 million in free cash flow.

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“In Q4, preliminary, unaudited results indicate that we again made a GAAP (generally accepted accounting principles) profit, but less than Q3,” Musk said. “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.”

The firm disappointed investors earlier this month after it announced it delivered 90,700 vehicles in the fourth quarter, lower than investors had expected. That figure could foreshadow the company's fourth-quarter results, which it's due to release early next month.

The automaker has faced pressure from a spate of big rivals in the industry, with companies like Ford, Nissan and General Motors committing to investments in the EV space and launching new vehicles in a challenge to Tesla.

Last year was a wild one in terms of news surrounding both Tesla and its boss. Musk's infamous U-turn on a tweet announcing he would take the company private eventually backfired, with the U.S. Securities and Exchange Commission landing both Tesla and Musk with respective $20 million fines.

Tesla Chief Executive Elon Musk sent an email to employees on Friday announcing the company would cut full-time staff by around 7 percent.

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Elon Musk speaks on stage during the Westworld Featured Session during SXSW at Austin Convention Center on March 10, 2018 in Austin, Texas.

In the note, Musk says the firm faces a “very difficult” road ahead in its long-term goal to sell affordable renewable energy products at scale, noting the company is younger than other players in the industry.

Here's the full text of the company update:

This morning, the following email was sent to all Tesla employees:
As we all experienced first-hand, last year was the most challenging in Tesla's history. However, thanks to your efforts, 2018 was also the most successful year in Tesla's history: we delivered almost as many cars as we did in all of 2017 in the last quarter alone and nearly as many cars last year as we did in all the prior years of Tesla's existence combined! Model 3 also became the best-selling premium vehicle of 2018 in the US. This is truly remarkable and something that few thought possible just a short time ago.
Looking ahead at our mission of accelerating the advent of sustainable transport and energy, which is important for all life on Earth, we face an extremely difficult challenge: making our cars, batteries and solar products cost-competitive with fossil fuels. While we have made great progress, our products are still too expensive for most people. Tesla has only been producing cars for about a decade and we're up against massive, entrenched competitors. The net effect is that Tesla must work much harder than other manufacturers to survive while building affordable, sustainable products.
In Q3 last year, we were able to make a 4% profit. While small by most standards, I would still consider this our first meaningful profit in the 15 years since we created Tesla. However, that was in part the result of preferentially selling higher priced Model 3 variants in North America. In Q4, preliminary, unaudited results indicate that we again made a GAAP profit, but less than Q3. 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.
However, starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles. Moreover, we need to continue making progress towards lower priced variants of Model 3. Right now, our most affordable offering is the mid-range (264 mile) Model 3 with premium sound and interior at $44k. The need for a lower priced variants of Model 3 becomes even greater on July 1, when the US tax credit again drops in half, making our car $1,875 more expensive, and again at the end of the year when it goes away entirely.
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. This is not new for us – we have always faced significant challenges – but it is the reality we face. There are many companies that can offer a better work-life balance, because they are larger and more mature or in industries that are not so voraciously competitive. Attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity, but succeeding in our mission is essential to ensure that the future is good, so we must do everything we can to advance the cause.
As a result of the above, we unfortunately have no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors. Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months. Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. There isn't any other way.
To those departing, thank you for everything you have done to advance our mission. I am deeply grateful for your contributions to Tesla. We would not be where we are today without you.
For those remaining, although there are many challenges ahead, I believe we have the most exciting product roadmap of any consumer product company in the world. Full self-driving, Model Y, Semi, Truck and Roadster on the vehicle side and Powerwall/pack and Solar Roof on the energy side are only the start.
I am honored to work alongside you.
Thanks for everything,
Elon

(Reuters) – Tesla Inc (TSLA.O) said it would cut thousands of jobs to rein in costs as it ramps up production of its crucial Model 3 sedan, and the electric car maker expects fourth-quarter profit to be lower than the previous quarter, sending its shares down 7 percent. FILE PHOTO: The logo of Tesla is… Continue reading UPDATE 2-Tesla to cut workforce by 7 pct, sees smaller Q4 profit