Tesla to cut 7% of workforce amid tough profit outlook
Elon Musk's electric car manufacturer Tesla Motors announced it was cutting its workforce by about seven percent.
Elon Musk’s electric car manufacturer Tesla Motors announced Friday it was cutting its workforce by about seven 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, 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 USD 44,000, a car that sells for as much as USD 59,000 with more features. Tesla originally discussed a price-tag of USD 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 USD 7,500 per vehicle of a US tax credit to encourage more sales of the environmentally friendly 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 USD 1,875 more expensive, and again at the end of the year when it goes away entirely, said the flamboyant Musk, who also heads SpaceX.
Rival automakers such as General Motors and Volkswagen are introducing more electric models that are priced competitively, a dynamic made possible by their fleets of conventional autos, including sport utility vehicles and pickup trucks, which have wide profit margins.
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