Tesla said Friday it would reduce full-time staff by 7% in a cost-cutting move aimed at making its Model 3 vehicle more affordable.
Tesla’s stock tumbled 13% on news of the layoffs, which CEO Elon Musk delivered in an email to employees.
“We face an extremely difficult challenge: making our cars, batteries and solar products cost-competitive with fossil fuels,” he said. “While we have made great progress, our products are still too expensive for most people.”
The Model 3, Tesla’s most affordable offering, currently sells for $44,000 with a range of 264 miles and premium sound and interior. But the automaker is seeking to offer a $35,000 version with a range of 220 miles.
“As a result … 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 said.
He added that Tesla would need to increase Model 3 production and make many manufacturing engineering improvements in the coming months 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.”
As Ars Technica reports, Tesla reported strong cash flow and profits in the third quarter of 2018 — the first time that has happened in several years — as, with tens of thousands of Americans waiting for the vehicle, it “was able to offer the highest-priced versions of the Model 3 first and enjoy a correspondingly fat profit margin.”
“But by the end of the third quarter, many of those affluent Tesla superfans had received their Model 3 deliveries,” Ars Technica noted. “As a result, Musk said, profits in Q4 were smaller than in Q3.”
The company disappointed investors earlier this month after it announced it delivered a lower-than-expected 90,700 vehicles in the fourth quarter. In other recent cost-cutting moves, it is ending its referral program, which provided free use of Tesla’s supercharger network for six months.
“The road ahead is very difficult,” Musk said Friday.