Elon Musk said he\u2019ll cut Tesla Inc\u2019s workforce by 7%, or more than 3,000 jobs, warning that the \u201croad ahead is very difficult\u201d in making electric cars more affordable for the mass market.<\/p>\n
Tesla shares fell 7.2% in early US trading after the Palo Alto, California-based company said it managed to eke out a profit in the final three months of 2018 – though narrower than the hard-won third-quarter earnings it reported in October.<\/p>\n
Tesla is under pressure to limit spending as it emerges from what Musk called the \u201cmost challenging\u201d year in its history. While it succeeded in scaling up output of its Model 3, the company missed analysts\u2019 production targets during the fourth quarter, and it\u2019s cut prices to partially make up for the halving of a US tax credit that\u2019s acted as a buyers\u2019 incentive.<\/p>\n
The credit is set to drop again in July before going away entirely at the end of the year.<\/p>\n
Model 3 Prices<\/strong><\/p>\n Tesla increased staff by 30% last year, which is \u201cmore than we can support,\u201d Musk said in a blog post Friday. It\u2019s absorbed some of the cost challenges by initially selling only higher-priced versions of the Model 3, its first vehicle billed as a car for the masses. Until now, the cheapest configuration available of the vehicle has cost $44,000, Musk said.<\/p>\n As production increases over the next few months, the company will need to sell lower-cost versions, he said.<\/p>\n \u201cStarting 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,\u201d Musk said. \u201cMoreover, we need to continue making progress towards lower priced variants of Model 3.\u201d<\/p>\n The chief executive officer has tweeted before about the risks involved with selling cheaper versions of the Model 3 too soon. He warned in May that Tesla would \u201close money & die\u201d if it shipped a $35,000 version of the sedan right away.<\/p>\n Tesla had about 45,000 employees, Musk tweeted in October. Based on that figure, the 7% cut works out to be about 3,150 jobs lost. The company is also expanding in Europe and China, which will be costly, said Sven Diermeier, a Frankfurt-based analyst at Independent Research GmbH.<\/p>\n \u201cWith rising Model 3 sales margins are deteriorating with a weaker model mix,\u201d Diermeier said.<\/p>\n \u201cCompensating for this will be difficult, so job cuts are logical.\u201d<\/p>\n Tesla Fighters<\/strong><\/p>\n The company will also see a significant increase in competition for electric cars, as traditional manufacturers have started to roll out an array of products that will be measured against its pioneering lineup. Daimler AG unveiled its EQC electric crossover last year. Audi followed with the E-Tron and its parent, Volkswagen AG, plans to introduce more than 50 purely battery-powered vehicles through 2025 across the group.<\/p>\n Tesla shares dropped to $322.40 in early US trading, costing Musk about $900 million, according to the Bloomberg Billionaires Index.<\/p>\n The stock was little changed over the past year, though it gyrated dramatically during 2018 as Musk careened from crisis to crisis, warring with analysts over Tesla\u2019s cash needs, smoking marijuana in an interview and losing his chairman\u2019s 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.<\/p>\n Tesla\u2019s overarching challenge is making cars, batteries and solar products cost-competitive with fossil fuels, Musk said Friday in the blog post.<\/p>\n \u201cWhile we have made great progress, our products are still too expensive for most people,\u201dMusk said. \u201cSorry 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.\u201d<\/p>\n 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.<\/p>\n Recent Auto Layoffs<\/strong><\/p>\n GM will close plants with more than 14,000 job cuts, though most hourly workers will be offered positions elsewhere Ford will cut thousands of jobs in Europe; Morgan Stanley has estimated the company\u2019s worldwide total reductions could reach 25,000 Jaguar Land Rover will cut 4,500 jobs, most of them in the U.K. Nissan announced 700 job cuts at its Mississippi plant this week<\/p>\n Tesla\u2019s layoffs mark the second shedding of workers in a matter of months. In June, Tesla dismissed 9% of its workforce, after misjudging how quickly it could ramp up mass-manufacture of the Model 3 – only to go on an aggressive hiring spree shortly after.<\/p>\n The company must now make rapid gains in its manufacturing processes as it increases the production rate of the Model 3, Musk said.<\/p>\n \u201cHigher 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,\u201d he said. \u201cThere isn\u2019t any other way.\u201d<\/p>\n
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