Electric-car maker says it eked out a profit in fourth quarter.
Elon Musk said he’ll cut Tesla Inc.’s workforce by 7%, or more than 3,000 jobs, warning that the “road ahead is very difficult” in making electric cars more affordable for the mass market.
The shares fell 7.2% in early U.S. trading after the Palo Alto, California-based company said it managed to eke out a profit in the final three months of 2018 — though narrower than the hard-won third-quarter earnings it reported in October, according to a blog post on Friday.
Model 3 Prices
The company increased staff by 30% last year, which is “more than we can support,” Musk said in the blog post. It has absorbed some of the cost challenges by initially selling only the highest-priced versions of the Model 3, its first vehicle billed as a car for the masses. Until now, the cheapest configuration available of the vehicle, which has a base price of $35,000, has cost $44,000, Musk said. As production increases over the next few months, the company will need to sell lower-cost versions, 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.”
“With rising Model 3 sales margins are deteriorating with a weaker model mix,” Diermeier said. “Compensating for this will be difficult, so job cuts are logical.”
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 lineup. Daimler AG unveiled its EQC electric crossover last year. Audi followed with the E-Tron and its parent, Volkswagen AG, plans to introduce more than 50 purely battery-powered vehicles through 2025 across the group.
Tesla shares dropped to $322.40 in early U.S. 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 settlement over his tweeted buyout offer that never materialized, 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 lineups, high battery costs are crimping margins and buyers worried about charging and driving range largely remain on the fence.
Recent Auto Layoffs
Tesla’s layoffs mark the second shedding of workers in a matter of months. In June, Tesla dismissed 9% 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.
The company must now make rapid gains in its manufacturing processes as it increases the production rate of the Model 3, Musk said.
“Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company,” he said. “There isn’t any other way.”
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