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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 Sell Model 3 to Mass Market |
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| 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 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. |
| The least-expensive version of the Model 3 now available costs $44,000. Mr. Musk said in a companywide email that he wanted the lowest-priced Model 3 to sell for $35,000. | |
| 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. | 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 shares were down about 9 percent in midday trading on the Nasdaq stock exchange after the announcement. | Tesla shares were down about 9 percent in midday trading on the Nasdaq stock exchange after the announcement. |
| 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 that it would shrink its work force by about 10 percent. | |
| Given the continuing uncertainty in global financial markets and signs that consumers are spending less, trimming costs to focus 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. | |
| 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. | 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. |
| 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. | 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. |
| “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. | “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. |
| 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.” | 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.” |
| “They would have lost money on every car they sold,” he added, echoing a sentiment expressed by Mr. Musk last spring. | “They would have lost money on every car they sold,” he added, echoing a sentiment expressed by Mr. Musk last spring. |
| 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. | 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. |
| “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.” | “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.” |
| 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. | 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. |
| “Head count reduction is part of the process,” Philippe Houchois, an analyst at Jefferies, said in a note to clients. | “Head count reduction is part of the process,” Philippe Houchois, an analyst at Jefferies, said in a note to clients. |
| 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 to be 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 added, and “the road ahead is very difficult.” | |
| Mr. Musk traveled to Shanghai this month to break ground for Tesla’s Gigafactory assembly plant. 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 that 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. | 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-Benz 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. | 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. | 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. | 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. |