Tesla announces mass layoffs in an effort to cut costs

mass layoffs

One of the leaders in EV manufacturing is going through a rough patch. Tesla Inc. has announced a wave of mass layoffs meant to control costs while the production of its Model 3 increases. Meanwhile, forecasts indicate that the profits of the fourth quarter will drop compared with the previous one. As a result, the company’s stocks went down by 7 percent.

Tesla has fought to lower its expenses for a long time. CEO Elon Musk has been under immense pressure to stabilize production of the Model 3, considered as the key to alleviate its cash flow crisis and achieve long-term profitability.

A difficult decision

In a statement to Tesla employees, Musk explained the company’s current situation. “I want to make sure that you know all the facts and figures and understand that the road ahead is very difficult,” he said.

In this email, the executive assured that “we unfortunately have no choice but to reduce full-time employee headcount by approximately 7 percent (we grew by 30 percent last year, which is more than we can support) and retain only the most critical temps and contractors.”

This is Tesla’s second round of layoffs in seven months and it comes just days after cutting U.S. prices on all its vehicles and after it missed the mark in deliveries of the Model 3.

Mass layoffs and increased production

“Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months,” Musk wrote. He stressed that “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. There isn't any other way.”

As a result, it would retain only its contractors and critical employees.

The company had previously announced mass layoffs.

In June, the company announced it planned to cut its workforce by 9 percent. As of December 31, 2017, Tesla had 37,543 fulltime employees, according to its latest annual report.

Tesla recorded profits of $311.5 million or $1.75 per share for the third quarter ending September 30.

Musk, who has frequently established targets and deadlines that Tesla has not met, surprised investors by keeping his promise to ensure the company’s profitability in the third quarter for just the third time in its 15-year history.

Goodbye to more economical models

On the other hand, Tesla is simplifying its production line and saying goodbye to the 75 KWh Model S and Model X. This means that the base model for both electric lines will be much more expensive, thus reducing costumers’ options.

Tesla’s new business model is aimed at increasing the average sales price. Discontinuing the 75-KWh battery Model S and Model X will mean that the upper segment will become the entry-level model for both lines.

Simplifying Tesla’s line will also help reduce costs. This way, the company will not need as many distinctions for its production lines. The move is set to lower production costs in the long run by reducing the available options.

For more information, check Energía16

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