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Tesla said on Friday that it would reduce full-time employee headcount by around 7 percent, aiming to cut costs as it looks to start delivering lower-priced variants of its Model 3.
According to the BBC, Tesla employs more than 45,000 people, so the announced job cuts would affect around 3,000 employees.
Last year was Tesla’s most challenging, and at the same time most successful, year in its history, Elon Musk wrote in an email sent to all Tesla employees on Friday morning.
“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,” Musk wrote.
Currently, the most affordable Tesla offering is the mid-range 264-mile Model 3 with premium sound and interior at $44,000. The need for lower-priced variants will become gradually greater this year as the U.S. tax credit drops in half on July 1, and as it goes away entirely at end-2019, Musk said.
“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,” Musk wrote.
“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,” he said.
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In the email, Musk also provided some guidance on Tesla’s Q4 financial performance, saying that the company made a GAAP profit again in Q4, but smaller than the Q3 profit, which Musk considers “our first meaningful profit in the 15 years since we created Tesla.”
“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,” Musk added.
Following the news, Tesla’s shares plummeted more than 5 percent on NASDAQ in pre-market trade.
The announcement of job cuts is not as bad news as the market interprets it to be, according to some analysts.
“Reducing headcount also suggests productivity gains,” CNBC quoted Jefferies analyst Philippe Houchois as writing in a note to investors on Friday.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.