Tesla to cut 7% of jobs to lower Model 3 costs, shares tumble

London: Tesla Inc will cut its full-time employee headcount by 7 per cent, with Chief Executive Officer Elon Musk saying the “road ahead is very difficult” to make electric cars affordable for the mass market.

The shares fell 7.6 per cent in pre-market trading after the Palo Alto, California-based company said it managed to eke out a profit in the fourth quarter — though a narrower one than the hard-won third-quarter profit it reported in October, according to a blog post on Friday.

Tesla is under pressure to limit spending as it emerges from what Musk called the “most challenging” year in its history. While it succeeded in scaling up output of its Model 3, the company missed analysts’ production targets during the fourth quarter, and it’s had to cut prices to make up for the halving of a US federal tax credit that’s helped spur sales. The credit is set to drop again in July before going away entirely at the end of the year.

The company has cushioned its production challenges by initially selling only the highest-priced versions of the Model 3, its first vehicle billed as a car for the masses. In the next few months, as production increases, the company will need to sell lower-cost configurations, Musk said on the blog post. Up until now, the cheapest Model 3, whose base price is $35,000, has cost $44,000, he said.

“Starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles,” Musk said. “Moreover, we need to continue making progress towards lower priced variants of Model 3.”

Tesla had about 45,000 workers in 2018, so the 7 per cent cut works out to about 3,150 jobs lost.

Tesla fighters

The company will also see a significant increase in competition for electric cars as traditional manufacturers have started to roll out an array of products that will be measured against its pioneering line-up. Shortly after Daimler AG’s EQC electric crossover, Audi last year unveiled the E-Tron. Its parent, Volkswagen AG, plans to introduce more than 50 purely battery-powered vehicles through 2025 across the group.

Tesla shares dropped to $321 in early US trading. The stock is little changed in the past year — though it gyrated dramatically during 2018 as Musk careened from crisis to crisis: warring with analysts over Tesla’s cash needs; smoking weed in an interview and losing his chairman’s role in an SEC colony over his tweeted buyout offer that never materialised, all while working furiously to ramp up production of the Model 3.

Tesla’s overarching challenge is making cars, batteries and solar products cost-competitive with fossil fuels, Musk said Friday in the blog post.

“While we have made great progress, our products are still too expensive for most people,” Musk said. “Sorry for all these numbers, but I want to make sure that you know all the facts and figures and understand that the road ahead is very difficult.”

Incumbent carmakers are also struggling with the high cost of making electric cars. On top of record investment in new electric-car line-ups, high battery costs are crimping margins and buyers worried about charging and driving range largely remain on the fence.

Tesla’s layoffs mark the second shedding of workers in a matter of months. In June, Tesla dismissed 9 per cent of its workforce, after misjudging how quickly it could ramp up mass-manufacture of the Model 3 — only to go on an aggressive hiring spree shortly after.