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Tesla to Cut 3,000 Jobs in Bid to Sell Model 3 to Mass Market Tesla to Cut 3,000 Jobs in Bid to Push Model 3 Into the Mass Market
(35 minutes later)
Tesla will reduce its full-time work force by 7 percent in an effort to lower the cost of producing its Model 3 sedan and make it a mass-market vehicle, Elon Musk, the electric-car maker’s chief executive, told employees on Friday. Tesla is reducing its full-time work force by 7 percent as it tries to lower the cost of making its Model 3 sedan, the company’s chief executive, Elon Musk, told employees on Friday.
The least-expensive version of the Model 3 now available costs $44,000. Mr. Musk said in a companywide email that he wants the lowest-priced Model 3 to sell for $35,000. Tesla also plans to ramp up production and improve the design of the electric car, which currently costs $44,000 for its most affordable version, Mr. Musk said in an email. “There isn’t any other way” to “achieve the economies of scale” necessary to sell the Model 3 for $35,000 while remaining viable, he wrote.
To do so, Mr. Musk said in the email, Tesla must improve the car’s design, increase production and shed thousands of workers. “There isn’t any other way,” he wrote. Tesla stock slumped more than 8 percent in premarket trading on the Nasdaq stock exchange.
Tesla shares were down about 9 percent in midday trading on the Nasdaq stock exchange after the announcement. The job cuts, which could affect more than 3,000 people, come after a 9 percent reduction in June. Last year “was the most challenging in Tesla’s history,” Mr. Musk wrote on Friday, adding that “the road ahead is very difficult.”
The cuts, which could put more than 3,000 people out of work, follow a 9 percent reduction in Tesla’s staff in June. Another of Mr. Musk’s companies, the privately held rocket maker SpaceX, said this month it would shrink its work force by about 10 percent. Another one of his companies, the private rocket maker SpaceX, also said this month that it was cutting about 10 percent of its work force.
Given the continuing uncertainty in global financial markets and signs that consumers are spending less, trimming costs and focusing on affordability is “a prudent thing to do” for a company that started out selling cars with an average price close to $100,000, said Romit Shah, a research analyst at Nomura Instinet. Tesla recorded its first quarterly profit in two years, and its largest ever, in its third quarter, aided by cost-cutting, delayed payments to suppliers and a surge in production and sales. The company expects to earn a smaller profit in the fourth quarter, based on preliminary, unaudited results cited by Mr. Musk.
In October, Tesla reported that the third quarter of 2018 had yielded its first quarterly profit in two years, and its largest ever, thanks to cost-cutting moves, delayed payments to suppliers and a surge in production and sales. “This quarter will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit,” he wrote.
Mr. Musk said in his email on Friday that, based on preliminary, unaudited results, the company expected to earn a smaller profit in the fourth quarter. The electric-car maker lowered prices on all of its vehicles by $2,000 this month as a federal tax credit for its vehicles worth $7,500 last year began to phase out.
“This quarter will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit,” he wrote in his email on Friday. The company can keep only crucial contract workers as it faces the challenge of making its products competitive with vehicles that run on fossil fuels, Mr. Musk wrote.
In the third quarter, Mr. Shah said, Tesla “needed to get to profitability to survive, and they wouldn’t have gotten there if they were selling a $35,000 car.” “While we have made great progress, our products are still too expensive for most people,” he wrote.
“They would have lost money on every car they sold,” he added, echoing a sentiment expressed by Mr. Musk last spring. Traditional automakers such as Ford, General Motors and Nissan are pushing harder into the electric-vehicle market, pressuring Tesla as it struggled through a Model 3 production and delivery process that Mr. Musk has often described as “hell.”
To meet its production and profit targets, Tesla focused on selling more upscale models of the Model 3 to a core group of Tesla enthusiasts willing to pay the higher prices. As the company’s struggled to meet its manufacturing and financial targets, Mr. Musk’s behavior caused distractions.
“But there’s only a finite number of potential customers willing spend over $50,000 on a Model 3,” Mr. Shah said. “If Tesla wants to see a pathway to a million cars sold a year, they’re going to have to bring down that price point.” In August, he wrote in a short, cryptic post on Twitter that he was thinking about taking Tesla private and had secured funding, surprising board members and driving up the stock price.
To succeed, the company will need to extend its appeal to a wider audience. Mr. Musk said Friday that Tesla must begin to deliver its midrange Model 3 in all markets by around May while making progress toward producing the $35,000 version he envisions. The Securities and Exchange Commission later sued him in federal court, saying that he had misled investors. Mr. Musk settled with the agency, agreeing to pay a $20 million fine and step aside as chairman for three years.
“Head count reduction is part of the process,” Philippe Houchois, an analyst at Jefferies, said in a note to clients. In August, he said that the past year had been “excruciating.”
Tesla has already lowered prices for all of its vehicles this month by $2,000 as a federal tax credit for buyers of electric cars that was worth $7,500 last year begins being phased out.
“While we have made great progress, our products are still too expensive for most people,” Mr. Musk wrote.
Last year “was the most challenging in Tesla’s history,” he wrote, adding that “the road ahead is very difficult.”
Mr. Musk traveled to Shanghai this month to break ground for Tesla’s Gigafactory assembly plant there. It is expected to be producing Model 3s by the end of the year.
Having a base in China, which imposes a 15 percent tariff on imported cars, will give Tesla an advantage over automakers who produce vehicles outside the country. But economic activity is slowing in China, and many consumers there are cutting back on spending.
The car market in the United States is also showing signs of strain, with sales flattening last year.
Tesla is also contending with a challenge from traditional automakers like Ford, General Motors and Nissan, which are pushing harder into the electric-vehicle market. Audi, Jaguar Mercedes and others have also introduced or plan to produce electric models that in many cases are less expensive than Tesla’s.
As Tesla struggled last year to cope with a Model 3 production and delivery process that Mr. Musk has described as “hell,” his behavior created distractions for the company.
In August, he wrote in a short, cryptic post on Twitter that he was considering taking Tesla private and had “funding secured,” surprising board members and driving up the stock price.
The Securities and Exchange Commission later sued Mr. Musk in federal court, saying he had misled investors. He settled with the agency, agreeing to pay a $20 million fine and to step aside as chairman for three years.