Tesla announces 7% cut to workforce

  • Jan 20, 2019
  • Taipei Times

Elon Musk’s electric vehicle manufacturer Tesla Inc on Friday announced it was cutting its workforce by about 7 percent in a push to keep the Model 3 affordable for middle-income consumers.

Shares plunged following the announcement, which also signaled a tough profit road ahead for Tesla.

The round of job cuts — which follow an earlier downsizing announced in June — comes as the envelope-pushing company faces pressure in its home market on prices from the phasing-out of a tax credit for electric car purchases.

Musk did not release an estimate of the employment hit, but the company had 45,000 employees in October last year, suggesting about 3,150 would be cut.

Musk, who originally conceived of the Model 3 as a reasonably priced option for consumers who could not pay the lofty prices of its first two vehicles, said action was needed if the company was to succeed in its mission of challenging conventional autos.

“While we have made great progress, our products are still too expensive for most people,” Musk said in a blog post announcing the layoffs. “We need to continue making progress towards lower priced variants of Model 3.”

Tesla’s most affordable offering is currently a less-endowed version of the Model 3 at US$44,000, a car that sells for as much as US$59,000 with more features. Tesla originally discussed a price tag of US$35,000 for the car.

Selling the Model 3 at the higher price has enhanced profitability at the expense of access to the vehicles’ intended market.

Complicating matters further is the phasing down from US$7,500 per vehicle of a US tax credit to encourage more sales of the cars.

The need for “lower-priced variants of Model 3 becomes even greater on July 1,” when a US tax credit drops by half, making the car US$1,875 more expensive and again at the end of the year when it goes away entirely, Musk said.

The job cuts announced on Friday follow Tesla’s move in June to trim its workforce by about 9 percent.

Musk described that round of belt-tightening as necessary to enhance profitability.

In October, Tesla reported profits of US$312 million for the third quarter of last year.

In Friday’s blog post, Musk said preliminary results indicated that last year’s fourth-quarter profits would be smaller than in the prior quarter and that the outlook was tougher still for this quarter as it delivers its first Model 3 sales in Asia and Europe at higher price points.

Musk hopes for a “tiny profit” in the current quarter, something that would require “great difficulty, effort and some luck,” he said.

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