Tesla wants to cut more jobs to lower the price for model 3


TSLA 0.36%

The number of full-time employees is expected to be cut by 7% to lower the price of the Model 3 limousine as the automaker pursues its long-cherished dream of a $ 35,000 electric sedan.

The automaker, based in Palo Alto, California, also plans to increase production of the car and make further manufacturing improvements over the coming months, CEO Elon Musk said in a memo reviewed by The Wall Street Journal and later on the company's website Company was published.

"Larger quantities and improvements in manufacturing design are critical to Tesla's ability to achieve the economies of scale required to produce the" $ 35,000 "base model, and yet be a viable business," he said. "There is no other way."

He warned, "The road is very difficult."

Mr Musk added that unaudited results for the last three months of last year indicate that Tesla made a lower profit than in the third quarter.

In the pre-market trade, the Tesla share had fallen after the announcement by 7%.

The exact number of employees affected by the cuts was not immediately clear, but could be up to 3,400. The company employed about 49,000 people at the end of last year, including part-time and temporary workers.

The layoffs followed 9% downsizing in June last year as the company wanted to cut costs during a phase of upheaval as it tried to increase production of the Model 3 after months of delays. The compact sedan is Mr. Musk's bet that Tesla can evolve from a niche luxury player to an automaker offering mainstream buyers a cheaper car.

However, this effort was hindered by the inability of Tesla to offer the car at the long-promised $ 35,000 price. The most cost-effective version starts at $ 44,000, after Tesla lowered the prices of all its vehicles by $ 2,000 in early January.

Eles Musk of Tesla said in a memo to the employees that the company will generate a lower profit in the fourth quarter of last year than the third.

Eles Musk of Tesla said in a memo to the employees that the company will generate a lower profit in the fourth quarter of last year than the third.


Robyn Beck / Agence France-Presse / Getty Images

At the time, Tesla said this had been done to make the cars more affordable as the US federal tax credit for electric vehicle buyers expired this year. This loan was worth $ 7,500 last year.

"The need for lower-priced variants of the Model 3 will be even bigger on July 1, when the US tax credit will be halved again, making our car more expensive at $ 1,875, and at the end of the year when it completely disappears," Mr. Musk said the note.

In October, Tesla reported a record $ 311.5 million in the third quarter, surprising the analysts and reassuring investors who had a turbulent year. Wall Street had expected a loss.

In the memorandum, which was sent at 1:20 in California, where the company is located, Mr. sat down. Musk said third-quarter earnings were partly due to the sale of higher-priced versions of the Model 3 in North America. Analysts surveyed by FactSet estimated the average retail price of the small car to be $ 59,000 over the review period against the BMW 3 Series and the Mercedes-Benz C-Class.

Tesla intends to deliver the Model 3 in Europe and Asia this quarter. Similar to sales in the US, Tesla plans to deliver a lower-priced version in these markets.

"Hopefully, with great difficulty, effort and luck, this will allow us to make a tiny profit," Musk said of the first quarter.

Tesla's revenue could face more pressure later in the year as the cheaper version of the Model 3 was moved from North America to Europe and Asia, and tax credits fell, leading to a price hike for US-dependent government-dependent buyers Help.

The challenge of producing the Model 3, which started production in July 2017, weighed on Tesla last year and the CEO, who showed signs of stress. Mr Musk surprised investors in August when he announced on Twitter that he was considering taking Tesla privately and securing the financing of such a deal.

The Tesla shares rose then, before falling in later days when it became clear that Mr. Musk had not made a deal.

Later, the US regulators accused him of misleading investors with the tweets and tried to prevent him from serving as a director or officer of a listed company. He signed with the Securities and Exchange Commission in an agreement that allowed him to remain as CEO, but gave up his role as chairman for three years. Tesla also had to add two more independent board members.

The job cuts at Tesla followed in a similar fashion to reduce costs in another Musk-based company, SpaceX, which was scheduled to reduce its workforce by 10% or around 600 employees this month.

Write to Tim Higgins at [email protected]