Elon Musk's electric car manufacturer Tesla announced Friday it is cutting its workforce by about seven percent in a push to keep its Model 3 affordable for middle-income consumers. Shares fell sharply following the announcement, which also signaled a tough profit road ahead for Tesla.
The round of job cuts - which follow an earlier downsizing announced in June - comes as the envelope-pushing company faces pressure in its home market on prices from the phasing-out of a tax credit for electric car purchases. Tesla's most affordable offering is currently the Model 3, at $44,000, Musk said in the blog post. Tesla launched Model 3 as an affordable option for consumers who couldn't afford the company's first two luxury-priced autos.
"The need for a lower priced variants of Model 3 becomes even greater on July 1," when a US tax credit drops by half, making the car $1,875 more expensive, and again at the end of the year when it goes away entirely, said the flamboyant Musk, who also heads SpaceX.
"Attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity, but succeeding in our mission is essential to ensure that the future is good, so we must do everything we can to advance the cause," Musk wrote.
Rival automakers such as General Motors and Volkswagen are introducing more electric models that are priced competitively, a dynamic made possible by their fleets of conventional autos, including sport utility vehicles and pickup trucks, which have wide profit margins.
The job cuts announced Friday follow Tesla's move in June to trim its workforce by about nine percent. Musk described that round of belt-tightening as necessary to enhance profitability, a goal that he said was essential to demonstrate that environmentally-friendly autos could be a viable business in terms of profit. In October, Tesla reported third-quarter profits of $312 million.
In Friday's blog post, Musk said preliminary results indicate that fourth-quarter profits will be smaller than in the prior quarter and that the outlook was tougher still for the first quarter of 2019. Musk hopes for a "tiny profit" in the current quarter, something that will require "great difficulty, effort and some luck," he said.
Tesla last month named two independent directors, Oracle co-founder Larry Ellison and Walgreens Boots Alliance Executive Vice President Kathleen Wilson-Thompson, as part of an agreement with the US Securities and Exchange Commission to settle fraud charges against Musk after his quickly-aborted effort last summer to take Tesla private.
Musk has been a polarizing figure in corporate America over the last couple of years, winning praise from many over his trailblazing entrepreneurship, but frequently turning heads over his unconventional and sometimes bizarre behavior, as when he appeared to be smoking marijuana during an interview that was webcast. Tesla shares sank 6.1 percent to $326.20.