Sun. Jul 21st, 2019

Tesla cuts 7% of its workforce, and Elon Musk sees a ‘very difficult’ road ahead as investors hammer the stock

GP: Elon Musk, chief executive officer of Tesla Inc., speaks during an event at the site of the company's manufacturing facility in Shanghai, China, on Monday, Jan. 7, 2019.

Tesla shares fall after layoff announcement — Five analysts on what’s next   2:47 PM ET Fri, 18 Jan 2019 | 06:39

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

The announcement follows recent cost-cutting measures the company has made in a bid to reduce the price of its products and boost margins.

Tesla shares fell 13 percent by the end of trading Friday.

In an email to employees, Musk said the company faces a “very difficult” road ahead in its long-term goal to sell affordable renewable energy products, 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.

“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.”

The exact number of employees who will be laid off has not been disclosed. However in an October tweet, Musk said Tesla had a staff count of 45,000. 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 electric car maker would also ditch its customer referral program, which rewarded perks likes six months of free charging, because it was “adding too much cost to the cars.”

Musk said Friday 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 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.”

Q4 profit likely lower than Q3

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

Musk said profit in the fourth quarter is likely to come in lower than in the previous quarter but added that he hopes Tesla will achieve a “tiny profit” in Q4.

“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.”