Tesla will reduce its full-time employment by 7 percent to reduce the cost of manufacturing its Model 3 sedan and turn it into a mass-market vehicle, Elon Musk, chief executive of the electric car maker, told employees on Friday.
The most cost-effective version of the now available Model 3 costs $ 44,000. Mr. Musk said in a company-wide email that he wants to lower the price to $ 35,000.
Musk said in the email, Tesla had to improve the design of the car, increase production and reduce thousands of workers. "There is no other way," he wrote.
The Tesla share lost about 9 percent after the announcement in midday trading on the Nasdaq exchange.
The cuts, which could make more than 3,000 people unemployed, follow one 9 percent fewer employees at Tesla in June. Another company owned by Mr. Musk, privately-owned spacecraft rocket maker SpaceX, said it would reduce its workforce by about 10 percent this month.
With ongoing uncertainty in global financial markets and signs that consumers are spending less, "reducing costs" and focusing on affordability is "a reasonable business" for a company that originally sold cars at an average price of nearly $ 100,000 Romit Shah. a research analyst at Nomura Instinet.
In October, Tesla reported that the third quarter of 2018 had achieved the first quarterly profit in two years. The biggest gain came from cost-cutting, late payments to suppliers and an increase in production and sales.
Mr Musk said in his e-mail on Friday that the company expected to generate a lower profit in the fourth quarter due to preliminary unaudited results.
"This quarter will hopefully allow us to make a tiny profit with great difficulty, effort and luck," he wrote in his e-mail on Friday.
In the third quarter, Mr. Shah said Tesla "would have to go into profit to survive, and they would not have gotten there if they sold a $ 35,000 car."
"They lost money on every car they sold," he added. echoing a feeling expressed by Mr Musk last spring.
To achieve its production and profit targets, Tesla focused on selling upscale Model 3 models to a core group of Tesla enthusiasts willing to pay the higher prices.
"However, there are only a limited number of potential customers willing to spend over $ 50,000 on a Model 3," Shah said. "If Tesla wants to see a way to a million cars sold each year, they have to lower that price."
To be successful, the company needs to extend its appeal to a wider audience. Mr. Musk said Friday that Tesla must launch its mid-size model 3 in all markets by mid-May, while making progress in producing its $ 35,000 version.
"Reducing the number of people is part of the process," said Philippe Houchois, an analyst at Jefferies, in a note to customers.
Tesla has already lowered prices for all its vehicles by $ 2,000 this month as the $ 7,500 electric car tax credit expires last year.
"Although we have made great strides, our products are still too expensive for most people," Musk wrote.
Last year "was the hardest in the history of Tesla," he wrote, adding, "the road to the future is very difficult."
Mr. Musk traveled to Shanghai this month Break ground for the Gigafactory assembly plant of Tesla. It is expected that the Model 3 will be produced by the end of the year.
With a base in China that requires a 15 percent import tariff, Tesla gets an edge over automakers that produce vehicles outside of the country. But economic activity is slowing down in China, and many consumers are reducing their spending there.
The passenger car market in the US is also showing signs of a burden, with sales flattening in the last year.
Tesla also has a challenge from traditional automakers such as Ford, General Motors and Nissan, who are pushing harder into the electric vehicle market. Audi, Jaguar Mercedes and others have also introduced or planned electric models, which in many cases are cheaper than Tesla's.
When Tesla struggled with the Model 3 production and supply process last year, which Mr. Musk called "hell," his behavior caused distractions for the company.
In August, he wrote in a brief, cryptic post on Twitter that he was thinking about Tesla privately taken and "financed", the executive board members surprise and drive up the stock price.
Later, the Securities and Exchange Commission sued Mr. Musk in federal court for misleading investors. He decided with the agency and agreed to pay a fine of $ 20 million and resign three years as chairman.