Tesla to Cut Workforce by 7%

By Douglas A. McIntyre Updated Jan 31, 1:51AM EST · Published Jan 18, 5:46AM EST

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Tesla to Cut Workforce by 7% — © Scott Olson / Getty Images

Elon Musk, the CEO and founder of Tesla Inc. (NASDAQ: TSLA | TSLA Price Prediction), said he could cut his workforce 7%, even though the company needs to increase production of its inexpensive Model 3. Musk did not make it clear how he could both cut staff and increase production.

According to a letter Musk sent to his employees, Tesla may have a “tiny profit” for 2018. That means that after a profitable third quarter, bottom-line results for the final quarter may not be as good. Among the reasons is that Tesla increased its workforce by 30% last year, which Musk said was too much to make a profit under current circumstances.

Production of the Model 3 to fulfill demand is only part of the math Musk explained. As the company cannot offer federal tax credits, which have helped drive demand higher, it will need to provide lower prices on its Model 3 to remain competitive in the market. This, in turn, means that costs will need to be lowered. “The need for a lower priced variants of Model 3 becomes even greater on July 1, when the US tax credit again drops in half, making our car $1,875 more expensive, and again at the end of the year when it goes away entirely,” Musk wrote. Federal credits fall as electric car companies sell more vehicles. Tesla’s customer credits dropped at the start of this year from $7,500 to $3,750, as it hit the 200,000 cars sold level. That falls in half again at midyear and disappears in 2020.

How does Musk plan to increase production with a smaller work staff? He says it will be via “making many manufacturing engineering improvements in the coming months.” There are no facts that show that the plan is assured. However, Musk said the company could not make more Model 3 vehicles and deliver them at $35,000 with a range 200 miles this year and maintain push toward profits.

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For those who will be forced to leave, Musk offered this farewell, “To those departing, thank you for everything you have done to advance our mission. I am deeply grateful for your contributions to Tesla. We would not be where we are today without you” To those who will stay, there will be more challenges ahead.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.