Tesla has announced to cut workforce by 7 per cent. The cuts were announced by Chief Executive Elon Musk in an email. At present, Tesla's total staff count is around 45,000. The latest layoffs will impact around 3,000 to 3,500 employees worldwide.
Musk highlighted the cuts are being done to make the production process of the Model 3 cheaper which will include many manufacturing engineering improvements.
In an email, Elon Musk stated that while the last year was also the most successful year in Tesla’s history but it was also the most challenging year as well.
“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."
Musk revealed that while in Q3 last year, Tesla made a 4% profit, in Q4, preliminary, unaudited results indicate that it again made a GAAP profit, but less than Q3.
“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.”
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.”
While Musk is bang on point when he says that "attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity" but whether Tesla will be successful financially as it advances the cause is something everyone is watching out for.