Cleveland, Ohio – Tesla is cutting 9% of its workforce, about 4,000 jobs, in a bid to reach profitability as it struggles to launch its Model 3 electric car.
“Given that Tesla has never made an annual profit in the almost 15 years since we have existed, profit is obviously not what motivates us,” Founder and CEO Elon Musk said in a letter to employees that he released on Twitter after it had been leaked to media outlets. He added that transitioning transportation to sustainable, clean energy is more important than profits, “but we will never achieve that missions unless we eventually demonstrate that we can be sustainably profitable.”
The cuts will target management and research and development. Assembly workers in Fremont, California, will continue to work on the long-delayed mainstream Tesla.
Difficult, but necessary Tesla reorg underway. My email to the company has already leaked to media. Here it is unfiltered: pic.twitter.com/4LToWoxScx— Elon Musk (@elonmusk) June 12, 2018
When Musk announced the Model 3 in 2016 – a mainstream vehicle with a price tag as low as $35,000 that could bring more buyers to the electric vehicle movement – he shared lofty targets such as 500,000 sales per year, 25% gross profit margins, and enough free cash to continue Tesla’s massive investments in R&D.
However, long delays in getting the cars to market, coupled with higher-than-expected expenses, have curtailed those rosy visions. Model 3 production started in 2017, and Musk had predicted 5,000 vehicles per week (a 250,000-vehicle annual rate) by year’s end, but by the end of 2018’s first quarter, build rates were less than half of that.
Several analysts have said that the company will need to raise more cash this year, either by selling stock or bonds, but Musk has said Tesla will be able to earn enough from auto sales to fund its operations.
Handicapping Model 3 build rates, a stand-in for Tesla revenues, has become a parlor game for many research and media outlets. And those predictions are all over the place – some saying Tesla production is close to 6,000 units per week, others pegging it at less than 2,000.
Musk billed the job cuts announcement as a way to achieve profitability and continue to advance the goal of green mobility.
“Despite our tiny size, Tesla has already played a major role in moving the auto industry towards sustainable electric transport,” Musk said in his letter to employees. “We must continue to drive that forward for the good of the world.”
About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 18 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.